By Olawunmi Ashafa

Prof. Kevin Urama, Chief Economist and Vice President, Economic Governance and Knowledge Management, African Development Bank (AfDB), says the continent needs 74 billion dollars in 2024 for debt service.

Urama disclosed this at the launch of the Debt Management Forum for Africa (DeMFA) and its inaugural policy dialogue on Monday in Abuja.

The theme of the dialogue is; “Making Debt Work for Africa: Policies, Practices, and Options”.

He cautioned that the actual figure could be higher if hidden debt and contingent liabilities were accounted for.

Umara said, “According to the African Economic Outlook Report (AEO) 2024, in 2024, African countries are expected to spend around 74 billion dollars on debt service, up from 17 billion dollars in 2010, of which 40 billion dollars is owed to private creditors, representing 54 per cent of total debt service.

“As at today, 20 African countries are in debt distress or at high risk of debt distress. And refinancing risks could further increase going forward, especially for countries with large bullet redemptions.

“The implication is that while developed countries can sustain high levels of debt with low debt service burdens, developing countries including in Africa, particularly the most vulnerable among them, are devoting an increasingly large proportion of their fiscal resources to servicing public debt.

“Experiences have shown that debt relief and debt restructuring measures are often slow and their results are unsustainable as they do not address the structural issues that lead to the debt sustainability challenge.”

On rising debt refinancing needs and sovereign bond yields, Urama said that there were persistent liquidity challenges facing Africa, with debt refinancing needs of 10 billion dollars annually between 2025 and 2033.

He noted that African Eurobond yields had surged to 15 per cent in 2023, more than double the 2019 rate, complicating refinancing efforts.

He attributed these high yields to a mix of domestic and external factors, as well as unfair risk perceptions.

He emphasised the urgency of the discussions, while highlighting the persistent challenges posed by global, regional and domestic shocks.

“The timeliness and purpose of our meeting today cannot be overstated. We live in an era of recurrent and overlapping global crises, economic shocks, geopolitical tensions, climate change effects, all of which have intensified the realisation of the need for comprehensive reforms.

“This is particularly within the global finance and debt architectures underpinning development financing,” he added.

Umara also shed light on the growing debt challenges in Africa, saying, “Africa’s public debt has surged by 170 per cent since 2010 due to structural issues, global shocks, and domestic macroeconomic weaknesses.

“While public debt-to-GDP ratios have stabilised, the cost of debt servicing has risen sharply, diverting resources from critical investments in infrastructure and economic transformation. This has left 20 African countries in debt distress or at high risk of it.”

On inequalities in global financial flows, he noted that Africa faces a paradox of debt and development financing.

He added that the continent bears high borrowing costs in spite of its relatively low default risk.

“According to a United Nation Development Programme (UNDP) estimate, Africa pays an ‘Africa Risk Premium’ of 24 billion dollars annually in excess interest due to unfair sovereign risk perceptions, depriving the region of critical resources for development.”

He called for innovative and Africa-led solutions, saying, “We must have the courage to rethink existing models of borrowing, prioritise productive investments, and apply home-grown, context-specific solutions to tackle Africa’s debt challenges.

“The Debt Management Forum for Africa serves as a platform for high-level dialogue to ensure debt becomes a catalyst for sustainable growth, not a constraint.”

He explained the urgency of the discussions, while highlighting the persistent challenges posed by global, regional and domestic shocks.

“The timeliness and purpose of our meeting today cannot be overstated.

“We live in an era of recurrent and overlapping global crises, economic shocks, geopolitical tensions, climate change effects, all of which have intensified the realisation of the need for comprehensive reforms, particularly within the global finance and debt architectures underpinning development financing,” he said.

In his remarks, the Minister of Finance and Co-ordinating Minister of the Economy, Mr Wale Edun, expressed gratitude for the continuous support from AfDB.

He emphasised that the partnership had transformed into a mutually beneficial collaboration over the years, leading to critical grants, loans, and capacity-building initiatives targeted at improving the economic landscape of African nations.

Edun highlighted the significance of the DeMFA, which aims to specifically address public debt challenges on the continent.

He commended the AfDB for establishing the initiative, noting that while the World Bank had provided support in debt management for decades, the launch of a forum dedicated solely to Africa was a welcome development for the 54 countries in the continent.

The minister identified two issues facing African nations as the escalating levels of debt and debt service, which had constrained fiscal space for governments and the limited access to affordable funding in both domestic and international markets.

He said there was urgency to mobilise large capital pools to tackle social and economic challenges, including unemployment, infrastructure deficits, climate change and meeting the social development goals.

Edun stressed that DeMFA must be structured to build on the foundations laid by previous initiatives, offering a comprehensive approach tailored specifically to the needs and realities of Africa.

The finance minister urged DeMFA to focus on ensuring the long-term sustainability of public debt across Africa.

“As a forum, it must actively contribute to the continuous and sustainable management of public debt, helping nations avoid recurring debt crises and fostering development.

“By working together, we can overcome these challenges and accelerate Africa’s growth trajectory,” he added.

Edun commended the AfDB for its leadership in the initiative and expressed optimism about its potential to transform debt management practices across the continent.

“On behalf of all stakeholders, I wish the AfDB success in this endeavour and look forward to seeing its impact on Africa’s development,” he said.

Ms Allison Holland, Assistant Director of the Strategy, Policy, and Review Department at the International Monetary Fund (IMF), stressed the need to prioritise private sector debt resolution before shifting focus to public sector debt.

“The big challenge here is, why don’t we move forward with the private sector first? Wouldn’t this be faster?” Holland asked.

She noted that private sector debt restoration must be addressed before any official sector involvement can proceed.

According to her, IMF interventions often rely on the readiness of official creditors to engage.

“If the private sector is unable to restore debts, the IMF is restricted from moving forward. Official creditors remain a critical part of the process,” she added.

Similarly, Dr Anthony Simpasa, Director, Macroeconomic Policy, Forecasting and Research Department AfDB, attributed the rising debt profile of African countries to the increasing frequency and intensity of climate shocks.

“Many countries, particularly those vulnerable to climate shocks, have been forced to borrow heavily to finance climate-related projects.

“These projects, aimed at adaptation and mitigation, constitute the largest share of instruments used for climate financing on the continent,” the AfDB director explained. (NAN)

Edited by Folasade Adeniran