Okonjo-Iweala’s timely warning on foreign aid

With Africa’s external debt estimated to reach all-time high of over $650 billion this year, the Director General of the World Trade Organisation (WTO), former Nigerian Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, has warned African leaders to stop relying on foreign aid but rather focus on mobilising domestic resources to attract investments and drive economic growth in their countries.

The advice is timely, especially at this time when many African leaders are in a borrowing spree instead of looking inwards for rejuvenation of their economies. For instance, Nigeria’s total debt is projected to hit N187.8trillion at the end of 2025. The WTO boss, who spoke at the sidelines of the recent African Union (AU) meeting in Addis Ababa, Ethiopia, tasked African leaders to have a positive ‘mindset shift’ and exploit the abundant, but untapped financial and natural resources on the continent that could drive sustainable development.      

Statistics show that Africa holds over $250 billion in pension funds. But most of the funds are invested outside the continent rather than being channelled into local economies. Also, the fact that most of the loans taken by African leaders are not invested in productive sectors of their economies makes frequent borrowing even worse. The biggest pension funds are domiciled in South Africa, Nigeria, Kenya, Morocco, Botswana, and Namibia. 

As Dr. Okonjo-Iweala rightly observed, these huge untapped funds are significant and can be used to develop key sectors that can impact the lives of the people.  Beyond the binge borrowing by African leaders, one of the ways forward proffered by the WTO DG is to recapitalise Africa’s multilateral development banks, including the African Finance Corporation (AFC).This will help to expand the continent’s balance sheets and increase funding for key projects.                                        

Currently, these financial institutions have a combined balance sheet of over $70billion. Instead of resorting to borrowing spree, these aforementioned institutions should be strengthened. Africa’s total debt, including that of Nigeria, is worrisome. It represents a time bomb for present and future generations. As of the end of 2023, Africa’s external debt was $1.152trillion. This has become a barrier to development in the continent. In 2024, debt servicing costs in Africa stood at $90billion, and more than 40 per cent of African countries are reported to have spent more on debt servicing than on health and education.

The debt burden is limiting investment in critical areas, and without genuine financial reforms, African countries face uncertain future. At present, about nine African countries are in debt distress, and eleven reportedly at high risk. All of this is eroding funds for sustainable development. The projected N187billion debt for Nigeria in 2025 is due to excessive borrowing. The federal government, according to the Debt Management Office (DMO), is expected to spend N15.8trillion on debt servicing, which is 45 per cent of Nigeria’s total revenue. This is more than the combined allocations for education, health, security and infrastructure.                                

Debt servicing makes up the largest vote of the 2025 N54.9trillion budget, with a deficit of N13trillion which will be financed through external and domestic borrowings. Recently, the government said it plans to mitigate sustainability risks through the controversial tax reforms. Nigeria’s debt to GDP is estimated to be around 39 per cent in  2025. This is a critical index which investors use in measuring a country’s ability to repay its debt. With a big chunk of government’s revenue allocated to debt servicing, little is left for expenditures.                    

The top 10 African countries with the highest International Monetary Fund (IMF) credit outstanding are Egypt, Kenya, South Africa, Angola, Ghana, DR Congo, Ethiopia and Cote d’ Ivoire. Nigeria’s public debt has ballooned from N121.67trillion (US$91.46bn) in Q12024 to an estimated N187trillion by end of 2025. This raises great concerns. The Nigerian Senate last year approved $2.2 billion (about N1.77 trillion) external borrowing request by President Tinubu to finance 2024 budget deficit of N9.17 trillion.                                                     

The $2.2billion external loan comes amid reports that Nigeria’s debt exposure to the World Bank’s International Development Association (IDA) increased to $17.1billion as of September 30, 2024. IDA is part of the World Bank that provides grants and low-interest loans to help the world’s poorest countries. In all, African leaders should heed the advice of the WTO boss and look inwards to solve their financial challenges. The new “mindset” she referred to is a call for collective action to save their countries and citizens from debt trap that comes with far-reaching consequences that could be too hard to bear.