With Africa’s total debt hitting $1.2 trillion, Afreximbank has said that governments on the continent must embrace fiscal discipline, noting that from 2027, citizens will begin to see a significant reduction in their nations’ debt profiles.
It also put global public debt at a staggering $102 trillion in 2024, marking a $5 trillion increase from 2023, with the fiscal policies of economic powerhouses like the United States, which constitutes 34.6 per cent of global debt and China primarily driving this surge.
In its report titled: “ African Debt Outlook: A Ray of Optimism”, the bank stated that while Africa’s public debt-to-GDP ratio remains relatively lower compared to other regions, the sustainability of its debt servicing has become a pressing concern.
Yet, amid these challenges, the continental bank stated that there was a glimmer of hope, with recent initiatives suggesting that Africa is making significant strides in stabilisng its debt profile, with a projected decline in debt levels expected by 2027-2028.
“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.
Africa, it said, can navigate its post-crisis recovery phase by advocating reforms in international financial architecture, fostering greater transparency, and building a resilient economic future.
To secure this optimistic outlook, it said that a multifaceted policy response was essential, explaining that policymakers must prioritise effective expenditure management, revenue mobilisation, and active participation in initiatives like the G20 Common Framework.
“Agriculture, manufacturing, technology, and tourism investments will reduce reliance on volatile commodity markets while advocating for fair creditor- debtor treatment to ensure a more equitable global financial system.
“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 added, noting that economic slowdowns often reduce foreign exchange earnings, making it challenging for these countries to meet their debt obligations and resulting in further borrowing.
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.
While borrowing costs in African countries have risen significantly in recent years, the effective interest rates for borrowing in Africa, it said, have experienced a notable increase, peaking at 8.2 per cent in 2024.
This, the bank said, is a significant rise from the stable range of 5.4 per cent to 6.3 per cent observed from 2008 to 2019. This sharp increase, it explained, suggests potential economic challenges such as rising inflation, increased risk perception among lenders, or tightening monetary policies.
But the bank stated that the economic outlook for Africa indicates favourable conditions for debt management, with a projected decline in the debt trajectory over the medium term.
“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.
According to the bank, several key factors underpin this favorable trend, including a supportive macroeconomic environment, a gradual decrease in persistently high interest rates, improved credit ratings, and renewed access to capital markets.
“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.
