AFRICAReports Infrastructure Financing News & Reports

WTO Chief, Okonjo-Iweala Warns Nigeria, Other Africans On Danger of Rising Debt Profile

The Director-General of the World Trade Organisation (WTO) Ngozi Okonjo-Iweala has expressed concern about rising national debts, warning that majority of countries in the continent face a high risk of falling into a debt trap.

Dr Ngozi Okonjo-Iweala

Okonjo-Iweala observed that the current debt burden pre-dated COVID-19 but was worsened by the pandemic. Noting that “prevention is better than crisis management”, she warned that Africa could not afford to fall into a debt trap again.

She said that many African countries’ debt to gross domestic product (GDP) ratio ballooned during COVID-19 and the oil market crisis.

For instance, she said, Nigeria’s debt to GDP moved up from 29 percent to 35 percent during the recent lull in the international crude market.

Okonjo-Iweala observed that the current debt burden pre-dated COVID-19 but was worsened by the pandemic. Noting that “prevention is better than crisis management”, she warned that Africa could not afford to fall into a debt trap again.

According to her, many African countries’ debt to gross domestic product (GDP) ratio ballooned during COVID-19 and the oil market crisis. For instance, she said, Nigeria’s debt to GDP moved up from 29 percent to 35 percent during the recent lull in the international crude market.

Recent data shows that the Federal Government spent a sum of N1.02 trillion on domestic and foreign debt service in the first quarter of 2021, representing a 35.7 percent year-on-year increase compared to N753.7 billion spent in the corresponding period of 2020.

A cursory look at the data released by the Debt Management Office (DMO) reveals that N612.71 billion was spent on domestic debt service, while N410.1 billion was expended on servicing of external debt.

The WTO DG described Africa as an embodiment of the global trickery growth, noting that the continent lags while the advanced economies and China “are growing at a faster rate.”

She noted that the growth prospect was further compromised by the debt burden and uneven COVID-19 vaccination, which could exclude African countries from the traveling space.

Adding that higher debt carriage capacity meant a higher risk of distress, she observed that most African governments considered it convenient to ignore the debt sustainability threshold when “things are good” only to expose themselves to systemic risks when the economy is on a downtrend.

The ex-Finance Minister called for the adoption of innovation in public finance and debt management, adding that increasing demand for bonds and enforcing open border initiatives as represented by the African Continental Free Trade Agreement (AfCFTA) could help to unlock economic potential and increase debt sustainability.

“Innovation in debt financing is key,” the trade expert said while noting rising debt to revenue translated to fewer resources for the much-needed developmental projects across the continents.

Facebook Comments

Stories you may like

LATEST NEWS

MOST READ