By Samuel Adams, Lagos
The African Export-Import Bank (Afreximbank) has announced that Africa is making progress in stabilizing its $1.2 trillion debt profile, with a significant reduction expected by 2027. The bank highlighted ongoing efforts to address the continent’s debt challenges, including improved fiscal management, debt restructuring initiatives, and enhanced economic diversification.
Afreximbank emphasized that these measures, coupled with increased regional trade and investment, are expected to contribute to a more sustainable debt trajectory in the coming years. The bank also called for continued collaboration among African nations, international financial institutions, and global partners to ensure long-term economic stability and growth across the continent.
In its report titled “African Debt Outlook: A Ray of Optimism,” the bank noted that while Africa’s public debt-to-GDP ratio remains relatively lower compared to other regions, the sustainability of its debt servicing has emerged as a critical challenge. This issue, it emphasized, requires urgent attention to ensure long-term fiscal stability and economic growth.
“This positive trajectory is fueled by favorable macroeconomic conditions, improved fiscal management, and enhanced access to capital markets,” it stated, questioning however, whether this can be sustained.
Afreximbank highlighted the importance of fiscal discipline, structured debt relief initiatives, and diversified economic investments as key pillars for achieving sustainable debt management.
The bank said Africa can successfully navigate its post-crisis recovery by championing reforms in the international financial architecture, promoting greater transparency, and building a resilient economic future, it stated. To achieve this optimistic outlook, a multifaceted policy response is essential. Policymakers must prioritize effective expenditure management, revenue mobilization, and active engagement in initiatives such as the G20 Common Framework.
Investments in key sectors like agriculture, manufacturing, technology, and tourism will help reduce reliance on volatile commodity markets. Additionally, advocating for fair treatment between creditors and debtors is crucial to ensuring a more equitable global financial system, it emphasized.
“The path ahead is challenging, but with the right strategies, Africa’s rising debt could become a stepping stone to sustainable growth rather than a ticking time bomb”, the report said.
Additionally, the high costs associated with infrastructure development, healthcare, and education in emerging markets, it said, necessitate extensive financing, often obtained through loans and other debt instruments.
While there had been international initiatives like the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI), which have provided significant debt relief to many African nations, however, the bank said that these relief efforts did not fully address the underlying structural challenges that led to recurring borrowings, such as limited export diversification and insufficient local revenue mobilisation.
“Africa owes a significant amount of its debt to external creditors. In the first half of 2024, 10 African nations constituted 69 per cent of the continent’s total external debt stock, up from 67 percent in 2023”, it said.
“Since 2008, the external debt of African countries has escalated significantly, reaching approximately $ 1.16 trillion and representing 60 per cent of the region’s total public debt stock as of 2023.
“Projections indicate a slight increase to $ 1.17 trillion, with sustained growth anticipated, potentially reaching $ 1.29 trillion by 2028. This trend is driven by the continent’s increasing financing requirements, largely due to population growth pressures.
“The continent’s increasing need for financing, especially infrastructure development, requires long-term debt. Between 2008 and 2023, long-term debt increased compared to short-term debt. In 2023, long-term debt accounted for 75.0 percent of the continent’s total debt, while short-term and IMF debt comprised 15.9 per cent and 8.9 per cent, respectively.
“Projections show that from 2024 to 2028, long-term debt will remain the dominant form of debt, making up 75.7 per cent, 75.9 per cent, 76.2 per cent, 76.4 per cent, and 76.4 per cent of the total debt, respectively,” it added.
In recent years, borrowing costs for African countries have risen significantly, with effective interest rates reaching a peak of 8.2 per cent in 2024, the bank reported. This marks a sharp increase from the stable range of 5.4 per cent to 6.3 per cent observed between 2008 and 2019. The bank explained that this notable rise could reflect underlying economic challenges, such as rising inflation, heightened risk perception among lenders, or tighter monetary policies.
Despite these challenges, the bank noted that Africa’s economic outlook remains conducive to effective debt management. It projected a decline in the continent’s debt trajectory over the medium term, signaling improved conditions for fiscal stability and growth.
“Forecasts for 2027-2028 suggest an average annual reduction of about 1.6 percentage points, signaling a long-term trend toward improved fiscal health. However, an expected increase of 1.8 percentage points is anticipated in 2024-2025 due to rising interest rates.
“Similarly, West Africa’s debt levels are projected to decline by 4.3 percentage points, from 51.6 per cent to 46.4 per cent over the same period,” the Afreximbank report said.
The bank highlighted several key factors driving this positive trend, including a supportive macroeconomic environment, a gradual decline in persistently high interest rates, enhanced credit ratings, and renewed access to international capital markets. These elements, it noted, are collectively contributing to the improved outlook for debt management across the continent.
“Additionally, advancements in debt resolution frameworks and emerging momentum in private- sector financing contribute significantly to these developments. These elements bolster debt sustainability and exemplify a coordinated proactive and strategic debt management approach.
“Although challenges persist, the overall outlook for these economies is increasingly optimistic as they navigate the recovery from the crisis, signaling a positive trajectory for fiscal sustainability throughout the region.
“Africa is navigating a complex debt environment, but the tide can be turned through targeted, actionable policies. Policymakers must prioritise robust fiscal measures, engage strategically with debt relief initiatives, promote long-term growth, and advocate for reforms to the global financial architecture,” the report added.
The bank therefore suggested fiscal discipline, optimisation of expenditure, conditional financing, public-private-partnerships and temporary moratoriums as some of the paths to freeing Africa from its debt burden.
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