African debt service soars to $74 billion in 2024 posing mounting fiscal challenges, says AfDB
A stark revelation from the African Development Bank (AfDB) indicates that African nations are set to allocate approximately $74 billion towards debt service in 2024, a staggering leap from the $17 billion recorded in 2010. This astronomical surge underscores the profound fiscal strains engulfing the continent.
According to the AfDB’s Macroeconomic Performance and Outlook 2024 report, a significant portion of this debt service, around $40 billion or 54.0%, is owed to private creditors. The surge in debt service payments, except in select nations like Chad, the Democratic Republic of Congo, Gambia, and Mauritania, has mirrored the escalating share of debt owed to private entities.
Compounding the dilemma is the deadlock in debt restructuring negotiations with private creditors. Ghana, in particular, is navigating a precarious path, proposing a substantial 40% haircut on its debt totaling up to $13 billion. However, the failure to secure favorable terms in these negotiations exacerbates the fiscal burden, curtailing government spending capabilities and amplifying debt vulnerabilities.
The report highlights the grim reality where external debt service payments, vis-a-vis government revenue, surpass pre-pandemic levels across numerous countries, signaling a distressing trend. Despite marginal declines in sovereign spreads, yields on outstanding Eurobonds persist at elevated levels, notably exceeding pre-crisis benchmarks.
For non-distressed nations, the average yield on outstanding Eurobonds has lingered above 12% since the onset of geopolitical tensions triggered by Russia’s invasion of Ukraine in 2022, a marked increase from the pre-pandemic era. Conversely, distressed countries such as Ghana confront even starker challenges, grappling with a doubling in Eurobond yields compared to pre-crisis levels.
The report underscores the broader ramifications of burgeoning external debt, delineating its corrosive impact on fiscal space. With debt service allocations eclipsing available resources, governments confront severe limitations in investing in critical growth-oriented sectors and human capital development.
Notably, allocations for education and healthcare, vital for sustainable development, languish below comparative benchmarks, exacerbating the continent’s socio-economic challenges.
Against this backdrop, the imperative for concerted efforts to address the burgeoning debt crisis looms large, necessitating innovative strategies to mitigate fiscal pressures and foster sustainable development across the African continent.
