Why Africa must act collectively to tackle debt challenges, by Edun

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Nigeria has raised alarm over Africa’s rising debt refinancing needs, costly access to liquidity, and limited access to global capital markets for emerging economies. 

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, who was represented by Mrs Aisha Omar, Director Special Projects at the Federal Ministry of Finance, raised the alarm during the 5th African Union Extraordinary Session of the Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning, and Integration held in Abuja on Saturday.

Edun stated that Africa’s public debt profile has significantly worsened over the years, becoming increasingly short-term and less consensual. 

The debt service burden has escalated, increasing financing risks. Since 2011, the average maturity of Africa’s external debt has declined from nearly 23 years to around 17 years in 2022,” he said.

The minister called on African countries to collaborate in reshaping their economies to reduce dependence on foreign aid. 

“It is important for Africans to work collectively in a more coordinated manner to shape our economies so that we will not rely on aid from international partners. Only through collective endeavours can we navigate the challenging times ahead,” he stated

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Edun praised the work of African experts in harmonizing divergent interests to create a unified resolution. 

He urged ministers and central bank governors to encourage political leaders to adopt these resolutions during the February 2025 African Union Heads of State Assembly. 

“Nigeria remains eternally grateful to our experts for their efforts. I urge all ministers and governors to invite our political leaders to endorse these resolutions at the next Heads of Government Assembly,” he added.

Edun reiterated Nigeria’s readiness to host the African Monetary Institute, a precursor to the operationalization of the African Central Bank. 

He expressed confidence in Nigeria’s role in advancing Agenda 2063, the African Union’s strategic framework for socio-economic transformation.

Central Bank of Nigeria (CBN) Governor Olayemi Cardoso echoed this sentiment, emphasizing Nigeria’s fiscal and economic reforms. 

The removal of fuel subsidies has created fiscal space for strategic investments. Targeted policies to enhance diaspora remittances have also improved our external reserves,” Cardoso noted. 

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He expressed optimism that the outcomes of the session would guide the February 2025 Assembly towards aligning regional aspirations with the Abuja Treaty and Agenda 2063.

Prof. Kevin Urama of the African Development Bank (AfDB) pointed out the dire implications of Africa’s rising debt. 

Africa’s public debt has surged by 170 percent since 2010, exacerbated by structural global debt architecture issues, recent global shocks, and weaknesses in our macroeconomic fundamentals,” Urama said.

He noted that the shift towards privately owned debt, which is projected to account for 54 percent of Africa’s total debt by the end of 2024, has increased borrowing costs. 

“Africa pays 500 percent more in interest costs when borrowing from international capital markets compared to borrowing from multilateral development banks like the AfDB,” he explained.

Urama also revealed the paradox of debt and development financing in Africa. 

“While debt sustainability risks are growing, high-cost, short-term debt options are creating sustainability challenges. This year alone, Africa is expected to spend $74 billion on debt refinancing, with annual costs projected at $10 billion from 2025 onwards,” he said.

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He added that Africa’s financing challenges are compounded by declining foreign direct investment (FDI) and portfolio flows. 

Urama stated that FDI fell by 44 percent in 2022, while net portfolio flows dropped by 17 percent. 

“Only remittances remained resilient, rising by 2 percent in 2022. These trends underline the paradox of debt and development financing in Africa,” he said.

Urama warned that without urgent interventions, Africa risks further distress. 

“In February 2024, 20 African countries were already in or at high risk of debt distress. The rising cost of debt is diverting resources away from critical development needs,” he concluded.

As African finance ministers and central bank governors deliberate on these pressing issues, the call for collective action resonates strongly. 

The resolutions adopted at the session are expected to set a transformative agenda for Africa’s economic future.

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