Africa must prioritize strengthening its fiscal buffers and creating home-grown solutions to address the continent’s ongoing debt sustainability issues, according to Prof. Kevin Chika Urama, Vice President and Chief Economist at the African Development Bank (AfDB).
At the recent launch of the Debt Management Forum for Africa (DeMFA) in Nigeria, Urama stressed that Africa should harness both internal and external lessons to develop effective strategies for managing debt sustainably despite challenges from global markets.
While Africa has experienced notable GDP growth in many countries, Urama pointed out that per-capita income growth remains insufficient. He urged the continent to refocus on fiscal discipline, enhance public finance management, and prioritize investments that support long-term growth and economic transformation.
Urama emphasized that viewing debt not only as a challenge but also as an opportunity for economic development and productivity is key. He stressed the importance of strategically investing in sectors such as manufacturing, where local content policies and franchising could generate employment and stimulate growth.
The AfDB economist further highlighted the concerning rise in Africa’s debt servicing costs. While the public debt-to-GDP ratio has stabilized, high borrowing costs and fluctuations in exchange rates, due to Africa’s reliance on US dollar-denominated debt, continue to place a strain on resources. He noted that African nations are projected to spend $74 billion on debt servicing in 2024, a significant increase from $17 billion in 2010.
Urama also pointed to the disproportionate share of global financial support that Africa receives. He called for more inclusive reforms in the global financial system to ensure the continent has access to affordable, long-term financing, which is crucial for addressing Africa’s financing gaps.
Ricardo Murillo, Project Manager at the Debt Management and Financial Analysis System (DMFAS), noted the historical lessons from debt crises, particularly in Latin America in the 1980s, which still resonate today. Murillo emphasized the importance of debt transparency in preventing such crises, particularly in low-income countries (LICs), where debt servicing can impede critical investments in sectors like health and education.
Transparency, he argued, allows governments, investors, and financial institutions to make informed decisions, helping to mitigate risks of default and supporting sustainable development. Furthermore, effective debt management tools, such as Debt Management Systems (DMS), are essential for organizing and analyzing debt data, which in turn helps secure investor confidence.
Eric Ogunleye of the African Development Bank stressed that well-managed debt decisions can support sustainable development and reduce the risk of economic instability. He recommended measures like debt buybacks and swaps to help countries reduce their exposure to external shocks and manage their debt more efficiently.
Austin Ndiokwlu from the International Budget Partnership (IBP) also emphasized the importance of transparent debt systems. By ensuring that citizens can see how borrowing contributes to national development, governments can foster trust and encourage equitable growth. Active oversight from legislatures, civil society organizations, and supreme audit institutions is essential for aligning borrowing decisions with national goals.
To further strengthen debt management, the IMF and World Bank have highlighted the importance of incorporating social and environmental considerations, such as gender equity and climate financing, into debt sustainability assessments. This comprehensive approach will help ensure that debt obligations are met without compromising development objectives.
In conclusion, effective debt management is vital for Africa’s long-term economic stability and growth. By embracing fiscal discipline, transparency, and strategic investment, African countries can overcome the challenges posed by rising debt and unlock opportunities for sustainable development.