Africa’s debt crisis has reached a critical juncture, with countries on the continent projected to spend $74 billion in 2024 to service their debt obligations, a dramatic rise from $17 billion in 2010.
This sobering revelation was made by Prof. Kevin Urama, Chief Economist and Vice President of Economic Governance and Knowledge Management at the African Development Bank (AfDB), during the launch of the Debt Management Forum for Africa (DeMFA) in Abuja on Monday.
The event, themed “Making Debt Work for Africa: Policies, Practices, and Options,” provided a platform to address the mounting challenges surrounding Africa’s debt sustainability.
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Urama highlighted that 54% of the 2024 debt service obligation, or $40 billion, is owed to private creditors. However, he cautioned that the actual burden could be higher when factoring in hidden debts and contingent liabilities.
“Twenty African countries are in debt distress or at high risk of debt distress,” Urama warned, pointing to the increasing refinancing risks for nations with substantial bullet redemptions.
The scale of Africa’s debt burden reveals a stark disparity between developed and developing countries. Developed economies, Urama explained, can sustain higher debt levels due to lower servicing burdens, while African nations are channeling significant fiscal resources into servicing public debt at the expense of developmental needs.
The AfDB Chief Economist noted that annual debt refinancing needs are projected to reach $10 billion between 2025 and 2033. The situation is worsened by skyrocketing African Eurobond yields, which surged to 15% in 2023, more than double their 2019 rate.
“These high yields are driven by a combination of domestic and external factors, as well as unfair risk perceptions,” Urama said, further stressing the urgent need for reform.
The “Africa Risk Premium” and Global Inequalities
Urama drew attention to a systemic bias in global financial systems, referencing the United Nations Development Programme (UNDP) estimate that Africa incurs an “Africa Risk Premium” of $24 billion annually in excess interest due to inflated sovereign risk perceptions.
“This deprives the region of critical resources for development,” he stated, calling for Africa-led solutions to reimagine borrowing models and prioritize productive investments.
Despite the urgency of the crisis, existing debt relief and restructuring mechanisms remain inadequate, slow, and unsustainable. Urama criticized these measures for failing to tackle the structural issues underpinning Africa’s debt sustainability challenges.
Ms. Allison Holland, Assistant Director of the Strategy, Policy, and Review Department at the International Monetary Fund (IMF), added to the discourse, emphasizing the importance of engaging private creditors first in debt resolution efforts.
“The big challenge here is, why don’t we move forward with the private sector first? Wouldn’t this be faster?” she asked, stressing that IMF interventions depend on the readiness of official creditors to engage.
Climate Shocks and Rising Borrowing Needs
The increasing frequency of climate shocks has further compounded Africa’s debt challenges. Dr. Anthony Simpasa, Director of the Macroeconomic Policy, Forecasting, and Research Department at the AfDB, explained that many African nations have been forced to borrow heavily to finance climate-related projects.
“Many countries, particularly those vulnerable to climate shocks, have been forced to borrow heavily to finance climate-related projects. These projects, aimed at adaptation and mitigation, constitute the largest share of instruments used for climate financing on the continent,” he noted.
A Call for Action
Addressing Africa’s debt crisis requires a multifaceted approach that goes beyond traditional debt relief measures. Urama and other experts at the forum advocated for rethinking borrowing models and exploring Africa-led solutions that prioritize productive investments and address systemic inequalities in global financial systems.
They note that the challenges, while formidable, also present an opportunity for African nations to push for a more equitable global financial architecture—one that recognizes and addresses the continent’s unique vulnerabilities while fostering sustainable development.