The African Export-Import Bank (Afreximbank) recently released a report stating that Nigeria and nine other African nations account for 69% of the continent’s foreign debt stock.
According to the report African Debt Outlook: A Ray of Optimism, Nigeria is among the top three most indebted nations, accounting for 8% of Africa’s total external debt.
South Africa is the biggest debtor, with 14% of Africa’s total external debt, followed by Egypt with 13%.
Angola has five percent, while Morocco and Mozambique each have six percent. Senegal and Côte d’Ivoire each own 3%, while Ghana and Kenya own 4%.
The report ascribes the high debt levels to the need for infrastructure funding, volatility in foreign exchange profits, and external borrowing fuelled by undeveloped financial markets.
The report read: “In the first half of 2024, ten African nations constituted 69 percent of the continent’s total external debt stock, up from 67 percent in 2023. The countries leading this metric are South Africa (14 percent), Egypt (13 percent), Nigeria (8 percent), Morocco (6 percent), Mozambique (6 percent), Angola (5 percent), Kenya (4 percent), Ghana (4 percent), Côte d’Ivoire (3 percent), and Senegal (3 percent).”
Nigeria’s debt load in perspective
Nigeria’s reliance on foreign borrowing to fund budget deficits and essential infrastructure is highlighted by its percentage of Africa’s external debt. The nation has continuously turned to the Eurobond markets, multilateral institutions’ concessional loans, and other outside funding sources to fill revenue deficits. According to Afreximbank, Africa’s total external debt stock is expected to reach $1.16 trillion in 2023 and $1.29 trillion by 2028.
Nigeria issued a $2.2 billion Eurobond in December 2024 to meet its financial commitments, demonstrating its continued prominence in the global capital markets.
The research emphasizes how private creditors are becoming more prevalent in Africa’s debt structure as funding from multilateral organizations like the World Bank and IMF declines.
Many African governments, like Nigeria, use Eurobonds to cover fiscal deficits because private creditors provide higher-yield products. Although this strategy offers quick funding, there are dangers involved because commercial borrowing often has higher interest rates and shorter maturities than concessional loans.
Nigeria, South Africa, and Morocco are all categorized as having “moderate” debt risk in the report. However, in light of tightening global financial circumstances, it warns about rising external borrowing rates. In 2024, Africa’s average borrowing cost jumped to 8.2%, a substantial increase from the steady range of 5.4% to 6.3% from 2008 to 2019.
Nigeria is under more financial strain as interest payments take up a larger portion of government revenue.
According to Afreximbank, the interest payments to government revenue ratio in Africa increased from 6.8% to 19.5% in prior years, reaching a peak of 27.5% in 2024. This growing debt payment demand is still strained budgets and restricting fiscal flexibility.
A shifting debt landscape and hopeful forecasts
Afreximbank remains hopeful despite the growing debt load, predicting that Africa’s debt-to-GDP ratio will gradually decrease from 69.9% in 2024 to 61.7% by 2028.
Nigeria’s debt trajectory should be stabilised through better fiscal management, economic diversification, and improved access to capital markets.
Across Africa, favourable macroeconomic conditions, steady interest rates, and rising credit ratings are mentioned as potential solutions to debt issues.
According to the research, nations like Ethiopia, Sudan, and Zambia have profited from debt restructuring through the Paris Club and the G20 Common Framework; Nigeria might consider adopting this strategy if needed.
Another element influencing the debt forecast is global monetary easing. Interest rate reductions by the U.S. Federal Reserve and other major central banks are anticipated to cut borrowing costs for African economies, particularly Nigeria.
Afreximbank lists issues that could jeopardize the sustainability of debt even as it offers a positive medium-term prognosis.
Given Nigeria’s reliance on oil earnings, which leaves the nation vulnerable to outside shocks, weak domestic revenue mobilization remains a significant concern.
Due to its large fiscal deficits, the nation must borrow more money, which makes it more vulnerable to changes in interest rates worldwide. Another danger is currency depreciation since servicing external debt becomes more expensive when the value of the naira declines.
Afreximbank advises nations to implement more robust debt management plans, such as increasing tax revenue collection, interacting with debt relief programs, and diversifying their economies through investments in renewable energy, manufacturing, and agriculture.
The research also urges changes to the global financial system to guarantee more equitable lending conditions and improved access to concessional funding for African economies.
