The African Development Bank (AfDB) forecasts that Africa's total external debt will reach 1.13 billion dollars in 2023, compared to 1.1 billion dollars in 2022.

Akinwumi Adesina, president of the AfDB, made this information known during his opening speech at the Paris Club, where he pointed to some of the factors responsible for the increase in Africa's external debt, including the effects of the Covid-19 pandemic on economies and their fiscal space, which led to the downgrading of several countries' ratings; the increase in energy costs and food prices due to the Russian-Ukrainian war; and the increase in the costs of adapting to climate change.

"With the tightening of monetary policies in the US and Europe, interest rates have risen, which has led to higher debt servicing costs. These combined effects have led to 25 countries in Africa being at risk of high indebtedness or in debt distress. As a result, the external debt service payments of 16 African countries will increase from 21.2 billion dollars in 2022 to 22.3 billion dollars in 2023," noted Adesina.

Highlighting the trends that have been the backbone of the rise in external debt, the AfDB noted that bilateral creditors and non-Paris Club commercial creditors are increasingly becoming the main sources of Africa's sovereign debt.

"While bilateral debt accounted for 52% in 2000, this figure decreased to 25% in 2021; the share of commercial debt in total debt increased from 17% in 2000 to 43% in 2021. Annual bond issues in Africa increased from an average of 10 billion dollars a year in the early 2000s to around 80 billion dollars a year in 2016-2020. This trend has been stimulated by very low global interest rates, with investors looking to emerging markets for yield," added Adesina.

Adesina also stressed that there has been a very rapid growth in debt to China, saying that the percentage of Chinese debt has gone from just 1% of total debt in the mid-2000s to 14% of total external debt in 2021, which includes infrastructure.

"Average interest rates on debt have diverged significantly over time, with multilateral debt standing at 1 percent; bilateral debt at 1.2 percent; China's debt at 3.2 percent; and private debt at over 6.2 percent. The maturity of the debt also extended among the creditors; while the maturity of the official debt was 30 years (for 62% of debt), the maturity of the bonds was, on average, 10 years. So we now have shorter-term debt with higher interest rates," said Adesina.

The AfDB chief also pointed out that a growing percentage of the debt is now in the form of loans secured by natural resources, saying that between 2004 and 2018, 30 loans secured by natural resources worth 66 billion dollars were signed by African countries.

According to him, most of the loans were secured by oil, minerals and raw materials, and the fall in commodity prices in 2014 put 10 of the 14 countries that used loans secured by natural resources into serious debt problems.

Speaking about the measures that can be taken to solve Africa's debt problem, he said that given the diverse nature of the creditors, most of whom are now outside the Paris Club, it has become more complex to address debt treatment, debt restructuring and debt resolution. The process has become more complicated as the interests of the creditors are divergent.

Adesina stressed the need to broaden the Paris Club to include commercial creditors and other creditors who do not belong to the Paris Club, adding that it is necessary to increase the transparency of the debt of all creditors.

"We have to make the G20 Common Framework work and be concluded quickly for Zambia, Chad, Ethiopia and Ghana, to create a debt treatment dynamic for all creditors," he said.

He stressed that loans backed by natural resources should no longer be used, given their non-transparent nature, the asymmetry of power in the negotiations and the countries' commitments.

"We need to extend concessional financing derived from the market to support countries. This will reduce the level of dependence of countries on expensive short-term debt. The African Development Bank Group's ADF market option can help mobilize 27 billion dollars for low-income countries," added the AfDB Director.

The President of the AfDB also pointed out that greater use of large-scale partial credit guarantees can help countries access the capital markets and issue bonds at lower interest rates and with longer maturities, citing the example of the AfDB's use of partial credit guarantees of 375 million dollars to support Egypt's 500 million dollar Panda bond issue, and the use of a 195 million euro partial credit guarantee to reduce the risk of a 350 million euro sustainable development loan granted by Deutsche Bank to Benin.

"The redistribution of SDRs to the African Development Bank can be multiplied by three to four times in order to provide greater financing for African countries. The financial model for the redistribution of SDRs, with a liquidity support agreement, developed by the Bank and the Inter-American Development Bank, has already reached the status of IMF reserve assets," said Adesina

"What is needed is for five countries to provide SDRs to the Bank. An allocation of five billion dollars will be transformed into 20 billion dollars of financing for Africa. An allocation of 50 billion dollars for multilateral development banks will make it possible to grant 200 billion dollars in new loans to countries," he added.

He also stressed the need to combat systemic risks in Africa, saying that Africa is the only region that does not have liquidity buffers to protect it against shocks.

"To change this situation, the African Development Bank and the African Union are working together to create an African Financial Stability Mechanism. This national mechanism will mutualize our funds and ensure that we avoid the collateral effects resulting from global shocks," added the AfDB president.