As public debt levels rise throughout Africa, including in Nigeria, regulators have urged nations in the region to adopt more stringent approaches to debt management in order to stimulate the economy and counteract the growing threat of debt. Director of the ECA’s Macroeconomics and Governance Division Adam Elhiraika acknowledged that debt management is a significant problem for African nations when speaking at a workshop on Debt Management Strategies for Member States. He made this claim despite the fact that rising levels of debt have become crucial to financing the country’s expanding economy.
Regardless that many nations use debt to fuel economic expansion, Nigeria’s debt to GDP ratio has been creeping ever higher over the last several years. Total governmental debt in the nation was N46.25 trillion ($103.11 billion) as of December 31st, 2022. It was forecasted that by June 2023, Nigeria’s debt profile might reach N77 trillion. While some degree of debt is not inherently bad, in the case of Nigeria, the country’s ballooning public debt is discouraging private investment, putting the economy at risk from increasing interest rates and escalating inflation.
Nigeria’s economy has been impacted by the country’s high debt.
A considerable portion of government revenue is being used for debt services, which is a direct result of the excessive use of domestic borrowing. Nigeria is one of the most indebted nations in Sub-Saharan Africa, suffering from slow economic development, stagnant export growth, a rapidly declining income per capita, and a severe case of multidimensional poverty. Public investment in Nigeria’s economy has been badly impacted by the country’s high level of debt, which has stunted the country’s economic growth and development.
While this seems to be a bad situation, Elhiraika believes it presents a chance to properly implement financial protection for numerous catastrophes that may become more visible in the near future. However, debtor nations may escape the legacy of ‘Too little, too late’ sovereign debt management and restructuring via efficient and effective debt management”. He continued by saying that several African nations have grown their public debt levels over the previous decade, and that this trend has been consistent with what has happened throughout every global recession over the past six decades.
African nations’ debt crisis has been exacerbated by rising borrowing rates
In 2020 and 2021, as nations struggled to recover from the impacts of the Covid-19 pandemic, they accumulated a large portion of the present national debt. He pointed out that the government’s ability to efficiently manage public debt has been diminished by the continual borrowing that has occurred amid an economic crisis. African nations’ debt crisis has been exacerbated by rising borrowing rates, a lack of access to conventional loan markets, and huge current account deficits.
Other reasons contributing to the debt crisis include hindered growth and investment, declined foreign investment, lower national credit rating, reduced productive investment, and increased inflation. Elhiraika provided some experience of the debt management scenario in which Sierra Leone has successfully adopted various debt and risk management measures, including debt exchanges and debt buy-backs, to handle and lessen the risks associated with the government’s ability to get new financing. Sierra Leone is also committed to ensuring that any new borrowings meet the concessional level of 35% grant element, and has continued to prioritize the mobilization of grants over loans.
Nigeria and other countries could learn from the Ethiopia case.
Similarly, Ethiopia adopted an approach to managing debt for the years 2016-2020 that would assist the country evaluate the price and risk of borrowing money. Habtamu Alamayo, a program officer in the Ethiopian Ministry of Finance, said that despite difficulties like low export performance, low FDI inflows, and political instability, the country was looking for ways to increase its funding through concessional sources and public-private partnerships. This is an approach that other countries, such as Nigeria, could learn from.