Africa’s external debt has reached critical levels, with 10 countries accounting for 67 percent of the continent’s debt stock, according to the State of Play of Debt Burden Africa Report 2024. Leading this group are Egypt and South Africa, which hold 14.5% and 14.3% of the external debt stock, respectively. Other highly indebted nations include Nigeria (8.4%), Morocco (5.9%), Mozambique (5.5%), Angola (5.3%) Kenya (3.7%), Tunisia (3.4%), Sudan (3.1%) and Ghana (3.0%). This concentration of debt among a few nations raises questions about fiscal sustainability and economic stability across the continent.
Rising Borrowing Costs and Debt Service Challenges
The report underscores a key challenge for these economies: the rising cost of borrowing. The State of Play of Debt Burden Africa Report 2024 highlights how borrowing costs increased significantly in 2023 and continue to escalate in 2024. The World Bank’s 2023 analysis found that debt-service payments, including principal and interest, rose by 5% in 2022 for developing countries. Countries eligible for loans from the World Bank’s International Development Association (IDA) faced debt-servicing costs of a record $88.9 billion in 2022.
The burden of debt service is particularly acute for the 24 poorest countries, where interest payments alone reached $23.6 billion in 2022. Many low-income nations now see their interest payments consume a growing share of export revenues. This is exacerbated by the fact that over a third of these countries’ external debt is tied to variable interest rates, making them vulnerable to sudden increases in global rates.
This surge in borrowing costs is partly due to global disruptions like the COVID-19 pandemic and the Russia-Ukraine war. These events have reduced access to international capital markets, making foreign-currency denominated debt more costly for African borrowers. The rising debt service obligations threaten to squeeze national budgets, diverting funds from essential sectors like healthcare and education.
Shifting Sources of Debt: From Paris Club to Private Lenders
The composition of Africa’s debt has also evolved over the past decade, shifting from traditional Paris Club creditors to commercial and non-Paris Club lenders. This change reflects broader shifts in global finance, with African nations turning to private debt markets to meet their financing needs. The State of Play of Debt Burden Africa Report 2024 reveals that private debt now constitutes 54.3% of Africa’s external debt, a sharp rise from 18.8% of GDP in 2008 to 41.6% in 2023.
While private lenders offer flexibility, they often come at a higher cost. This shift has increased debt vulnerabilities for African countries, making them more susceptible to fluctuations in global financial conditions. As private debt now overshadows contributions from both multilateral (27.1%) and bilateral (18.1%) creditors, questions arise about debt sustainability and the long-term impact on national economies.
High Debt Service and Default Risks
The report highlights the pressing issue of debt service, with Africa’s external debt reaching $824 billion in 2021, consuming about 65% of the continent’s GDP. The implications are profound for countries like Egypt and South Africa, where debt service payments strain fiscal resources. According to African Development Bank (ADB) President Akinwumi Adesina, Africa is set to pay $74 billion in debt service this year—an alarming increase from $17 billion in 2010.
The rising debt burden has also led to record levels of loan defaults. In 2022, non-performing loans (those failing to meet the original terms) in Africa surged to $149.4 billion, up from $112.2 billion in 2021. This spike in defaults is attributed to global economic conditions, including rising interest rates and intersecting crises that strain fiscal policies. However, the region saw a 13% decrease in defaults in 2023, to $129.9 billion, as some countries proactively restructured their debts through transparent and innovative mechanisms.
Debt Transparency and the Call for Reform
The opaque nature of some debt arrangements, particularly those backed by natural resources, has complicated Africa’s debt situation. Adesina has called for greater transparency in debt dealings, particularly in resource-backed loans, arguing that a lack of transparency hinders effective debt resolution. “It’s time for debt transparency and accountability. These opaque loans make resolving the debt crisis more challenging,” Adesina stated at the Semafor World Economy Summit.
Countries like Ghana and Kenya, facing significant debt pressures, are also grappling with these challenges. The high debt-service obligations have diverted resources away from critical needs such as healthcare and infrastructure development, creating economic bottlenecks that limit growth potential.
Implications for Future Debt Management
The report underscores that Africa’s debt crisis requires a multifaceted approach, including debt restructuring, increased transparency, and the development of more sustainable borrowing practices. According to the International Monetary Fund (IMF), sub-Saharan Africa’s public debt-to-GDP ratio peaked at 60.1% in 2023 and is expected to ease slightly to 58.5% in 2024 and 56.8% in 2025. However, this gradual decline may not be enough to alleviate the fiscal pressures many countries face.
For Egypt and South Africa, the two most indebted countries on the continent, the challenge lies in balancing debt repayments with growth needs. High debt levels can undermine economic stability, discourage investment, and limit the fiscal space needed to address development challenges. As Africa navigates this complex debt landscape, the emphasis must shift toward creating more resilient financial systems that can withstand global shocks while ensuring sustainable development.
