Africa's Rising Debt: Implications for Development Financing and a Sustainable Debt Management Approach
Presently, 19 African countries have exceeded the 60% debt-to-gross domestic product (GDP) threshold prescribed by the African Monetary Co-operation Programme (AMCP) for developing economies, while 24 have surpassed the 55% debt-to-GDP ratio suggested by the International Monetary Fund (IMF). More worryingly, using the IMF debt service-to-revenue threshold and benchmark, only two out of the 16 countries facing a high risk of debt distress have the capacity to pay it off. The debt increase raises concerns among bilateral creditors and international financial institutions, as several countries continue to take on more debt to manage debt burdens and poor macroeconomic conditions. This is taking place on the back of two prominent debt relief initiatives, the Heavily Indebted Poor Country (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI), which offered $99 billion in debt relief, addressing about 40% of Africa’s total public debt. This paper draws on comparative debt management strategies across the region, highlighting both challenges and best practices, specifically in Nigeria and Morocco. Fiscal authorities in both countries and beyond employ key strategies, such as issuing bonds on the longer end of the spectrum, to finance long-term projects that have the capacity to generate adequate revenue. In addition, borrowing is skewed towards external debt and a variety of debt instruments are being issued to mitigate the crowding out of the private sector and capturing a wider set of creditors. In addition, other non-conventional methods are being deployed to reduce the size of debt. Several countries are increasingly mobilising domestic resources through voluntary tax compliance schemes and efforts to formalise their economies, while improving the efficiency of public expenditure. However, challenges such as the quality of cost–risk analysis, viable and independent debt management offices and data inefficiencies still exist.