Debt Distress Should Be Avoided At All Costs Adesina And Okonjo-iweala Have Issued A Warning To African Leaders

Dr. Ngozi Okonjo-Iweala, former Minister of Finance and Director-General of the World Trade Organization (WTO), President of the African Development Bank (AfDB), Dr. Akinwunmi Adesina, Governor of the Central Bank of Egypt (CBE), Tarek Amer, and other regional economic stakeholders expressed concern about rising national debts yesterday, warning that the majority of countries on the continent would face default.

They voiced their concerns at the African Development Bank Group’s 2021 Annual Meetings, urging African political leaders to look for alternative sources of finance and increase debt management transparency. The majority of countries are battling with sustainability, according to the experts, and debt payment has become a big strain on the regional economy.

The current debt burden predates COVID-19, but it was exacerbated by the epidemic, according to Okonjo-Iweala. She warned that Africa could not afford to fall into a debt trap again, noting that “prevention is better than crisis management.”

During COVID-19 and the oil market crisis, she claims, several African countries’ debt to gross domestic product (GDP) ratios skyrocketed. During the recent slowdown in the international crude market, for example, Nigeria’s debt to GDP increased from 29% to 35%, she added.

According to recent data, the Federal Government spent N1.02 trillion on domestic and foreign debt servicing in the first quarter of 2021, a 35.7 percent year-on-year increase from the N753.7 billion paid in the same period of 2020.

According to the data given by the Debt Management Office (DMO), N612.71 billion was spent on domestic debt service, while N410.1 billion was spent on external debt payment.

Africa, according to the WTO DG, is a symbol of global trickery growth, as the continent lags behind advanced nations and China, which “are growing at a faster rate.” The financial burden and uneven COVID-19 vaccination, she warned, were further threatening growth prospects, perhaps excluding African countries from the travel area.

She went on to say that most African governments found it convenient to ignore the debt sustainability barrier while “things are good,” only to expose themselves to systemic dangers when the economy was on the decline.

The former Finance Minister called for more innovation in public finance and debt management, saying that raising bond demand and implementing open border efforts like the African Continental Free Trade Agreement (AfCFTA) might help unlock economic potential and improve debt sustainability.

“Debt financing innovation is critical,” the trade expert said, saying that rising debt-to-revenue ratios meant fewer resources for much-needed development initiatives across the continents.

According to Adesina, only one out of 38 African countries with sustainability reports is devoid of sustainability issues, according to continent-wide research. The rest, he said, faced difficulties ranging from moderate to severe.

To lessen the likelihood of a debt crisis, he believes that African countries must agree on the convergence of macroeconomic reforms, enhance the battle against corruption, and deepen domestic resource mobilization.

He stated that “full transparency on debt, especially debt owed by state enterprises,” and that debt reduction may not contribute to economic progress. He emphasized the importance of financial stability in averting the coming debt crisis.

In his opening remarks, Adesina stated that the gathering provided an opportunity for stakeholders to discuss ideas on how to position Africa and the African Development Bank for growth. The AfDB President expressed regret that Africa produced only 1% of the worldwide COVID-19 vaccine, but added that the continent must prepare for the task of immunization since “I would not continue to beg for vaccines.” He stated that the bank would continue to assist the continent in overcoming the difficulties.

He estimated that Sub-Saharan Africa would require $425 billion, with low-income Sub-Saharan Africa requiring more than half of that amount by 2030 to fully recover from COVID-19’s consequences, with additional 30 million Africans falling into poverty by the end of the year.

“The pandemic has had a massive impact on the continent’s economy. The total economic losses in Africa are anticipated to be between $145 billion and $190 billion. To help its recovery, Africa will require a large amount of resources, he said.

“We will support countries to tackle debt and embark on bolder economic governance reforms to prevent a debt crisis,” he said, acknowledging the role of public debt in growing poverty.

“With the IMF’s recent decision to issue $650 billion special drawing rights, we now have a real opportunity to address Africa’s debt challenges more forcefully (SDRs). “As agreed by African heads of state and global leaders at President Emmanuel Macron of France’s Summit on Financing of African Economies, $100 billion of these SDRs should be provided to support Africa,” he stated.

Amer, who urged macroeconomic managers to broaden the tax base to boost income, encouraged Africa’s finance ministers to take responsibility for the continent’s economic development and accounting, warning that “quick fixes” would not lead to long-term progress. As the continent seeks economic regeneration, he urged authorities to give special attention to unemployment and inflation.

The central banker also urged governments to work toward the establishment of autonomous monetary authority, claiming that independent central banks would develop the appropriate policies to ensure price stability.

It should be noted that Nigeria’s overall debt portfolio increased by 0.58 percent to N33.1 trillion in March 2021 from N32.9 trillion at the end of 2020. The debt spending for the quarter accounts for 30.7% of the total N3.32 trillion planned for debt servicing for the year.

With the country’s total public debt at N33.1 trillion, this means that every Nigerian today owes around N157,906.30 in debt per capita. According to the World Poverty Clock, Nigeria’s population is predicted to be 209 million. Debt per capita is computed by dividing a country’s total public debt by its population.

Nigeria’s declining revenue continues to be a serious impediment to the economy’s planned growth. As a result of the circumstance, the federal government has had to borrow money to fund its fiscal budget. In 2020, Nigeria will have spent the equivalent of 83 percent of its revenue. The government’s overall revenue for the year was N3.93 trillion, with N3.26 trillion spent on debt payment.

In a similar line, Nigeria posted a debt service to revenue ratio of 99 percent in the first quarter of 2020, with retained revenue of N950.56 billion and debt service of N943.12 billion. The government, on the other hand, forecasts a debt service ratio of 46.9% in 2021, with revenue of N6.6 trillion, based on a crude oil benchmark of $40 per barrel.

According to the 2021 budget, the money available for the year is predicted to be N7.99 trillion, indicating a budget deficit of N5.6 trillion, which will be filled by borrowing. The deficit would be covered by borrowings from domestic and foreign sources, according to Zainab Ahmed, Minister of Finance, Budget, and National Planning. She also indicated that the proceeds from privatization will amount to N205.15 billion.