AfDB: Nigeria, Others Require $10bn Annually for Debt Refinancing by 2025

•Urges Africa to Adopt pro-growth debt policies with launch of DeMFA

Nume Ekeghe

The African Development Bank (AfDB) has sounded the alarm on Africa’s rising debt burden, revealing that Nigeria and other countries on the continent would require an average of $10 billion annually for debt refinancing starting from 2025 to 2033.

The announcement was made during the launch of the Debt Management Forum for Africa (DeMFA) in Abuja yesterday, where the bank emphasised the urgency of adopting debt policies that promote sustainable growth and economic transformation.

Speaking at the hybrid event, which was its inaugural policy dialogue on “Making Debt Work for Africa: policies, practices, and options” AfDB Vice President and Chief Economist, Prof. Kevin Chika Urama, detailed the complexities of Africa’s debt crisis, highlighting the continent’s need for strategic reforms to address its debt sustainability challenges.

He noted that Africa’s public debt has surged by 170 percent since 2010 due to structural flaws in the global debt architecture, compounded by recent economic shocks and domestic vulnerabilities.

Coordinating Minister for the Economy, Wale Edun lauded the establishment of the DeMFA, noting its significance in addressing the unique debt management needs of Africa’s 54 nations.

He urged DeMFA to become an innovative platform to deliver solutions beyond existing debt management practices, particularly in light of Africa’s growing debt distress.

Urama disclosed that the continent’s debt servicing obligations were set to hit $74 billion in 2024, with private creditors accounting for 54 percent of this amount. This shift toward private debt ownership presents both opportunities and challenges, with African nations paying up to 500 percent more in borrowing costs from private markets compared to multilateral development banks like the AfDB and the World Bank. 

He added: “Africa’s debt service costs have however risen sharply, diverting resources away from infrastructure investment, thus constraining future GDP growth and economic transformation. For 49 African countries, average debt service cost rose sharply from an average of 8.4 percent of GDP in 2015–19 to 12.7 percent in 2020–22. 

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

“This leads to what I call the paradox of debt and development financing in Africa. Debt sustainability and debt refinancing risks are increasing.

“Short-term debt with increased service costs presents significant financing risks, constraining economic stability, and elevating default risks, with 20 African countries now at high risk or in debt distress.

“There is increasingly limited access to affordable liquidity. The continent needs over $74 billion in 2024 for debt service only. When hidden debt and all contingent liabilities are considered, the figure could be much higher.

“The liquidity needs for debt refinancing remain high at about an average of $10 billion per year from 2025 to 2033, with African Eurobond yields that have risen to 15 percent in 2023, double the 2019 rate, complicating debt refinancing.”

To address these challenges, Urama called for a rethinking of global financial systems and the implementation of homegrown solutions to strengthen Africa’s fiscal buffers.

He also advocated for the establishment of the African Credit Rating Agency to counter biases in sovereign ratings that inflate the perceived “Africa Risk Premium” and unnecessarily raise borrowing costs.

He noted that the newly launched DeMFA aims to serve as a platform for African policymakers, debt officers, and development partners to share best practices and formulate innovative strategies to manage the continent’s debt sustainably.

Furthermore, he said: “Africa can build and strengthen its fiscal buffers, and address the perennial challenges posed by the global debt markets that have engrained debt sustainability challenges in African countries.  

“Africa needs to be strategic in changing the narratives on debt from a debt sustainability challenge to a debt productivity opportunity. 

“Through investments in strategic pro-innovation industrial policy reforms with the right policy mix to boost factor productivity, manufacturing value added and inclusive economic growth, debt financing can become a key driver of accelerated structural transformation in countries.

“Tried and tested policies such as local content, franchising, and preferred procurement could go a long way in boosting investments in value chains of competitive advantages in countries, create jobs and boost economic prosperity.

“To make debt work for sustainable development in Africa, we, the African Elites and development Practitioners – Policymakers, Debt Management Officers, and Development Partners must therefore be prepared to think without a box.”

Edun, who was represented by the Director General, Debt Management Office (DMO), Patience Oniha said: “The introduction of DEMFA whose launch and inaugural meeting we are gathered for today is very significant in that it is focused on public debt. I would like to commend the African Development Bank for the very laudable initiative of instituting a DEMFA.

“Why is the creation of DEMFA a pivotal moment for African countries? The answer lies in two facts which a number of countries in the region are faced with. Firstly, is the challenge of growing debt and debt service which have increased resulting in constrained fiscal space for governments. Secondly, is the limited access to funding and the higher cost of borrowing in the domestic and international markets.

“These are against the backdrop of urgent need for pools of large capital to address the social and economic challenges of unemployment and infrastructure deficits amongst others while not forgetting the spending required for Climate Change and the Social Development Goals.

“These challenges have been well documented and accepted as real issues which need to be attended to for Africa to achieve growth and development.

“The DEMFA therefore, should be structured and positioned as a Forum, that will build on and provide more than similar institutions have done in the past, particularly with Africa as its focus.

“Consequently, on behalf of the African Finance Ministers, I would like to charge DEMFA to evolve as a Forum that will provide not only much-needed capacity building in public debt management, but to be innovative by coming up with new or additional tools that will improve on debt management tools and practices as we know them today. The latter is very important in order to avoid what seems to be a cycle of debt distress among African nations.

“Therefore, the key message to DEMFA today is to evolve rather quickly, as a foremost Forum that will actively and visibly contribute to continuous and long-term sustainability of public debt in Africa.”