AfDB proffers solution to Africa’s debt, forex challenges
The African Development Bank (AfDB) has issued strategic recommendations for Nigeria and other African countries to navigate escalating debt burdens and foreign exchange challenges.
These insights were presented by Prof. Kevin Urama, the AfDB’s Vice-President for Economic Governance and Knowledge Management, during a recent briefing on regional economic stability.
Prof. Urama stressed that debt, when effectively utilized, can be a catalyst for economic growth. However, he cautioned that the structure and quality of debt play a critical role in determining its sustainability.
“Debt for growth is a recognized strategy for economic development,” Urama said. “But the problem arises when countries over-rely on short-term, high-cost commercial loans, leading to refinancing risks.”
He explained that short-term loans often trap nations in unfavorable refinancing cycles, especially when repayments are due before the associated investments yield returns.
“To break this cycle, governments must prioritize long-term, low-interest financing tied to clear investment strategies that generate sustainable revenue,” he advised.
For Nigeria, Urama emphasized that the focus should not solely be on reducing borrowing but on ensuring that borrowed funds are channeled into productive sectors.
“The question is not whether Nigeria should borrow but how effectively those resources are deployed. Strategic investments in infrastructure can drive both immediate and long-term economic growth,” he noted.
Turning to Africa’s foreign exchange and trade dynamics, Urama identified dependency on imports, particularly food, as a critical vulnerability.
He highlighted how external shocks, such as the Ukraine war, have exposed the risks of relying on global supply chains.
“Africa has no business importing wheat from Ukraine when it holds 65 per cent of the world’s remaining arable land and a youthful population capable of driving agricultural productivity,” he said.
Urama underscored the importance of political stability and sound macroeconomic policies in addressing Africa’s economic challenges. He pointed to Botswana as a case study for leveraging stable governance to attract foreign investment.
“When political stability and good governance are in place, the cost of capital decreases, investments flow freely, and economic growth accelerates,” he said.
He recommended that African governments adopt long-term strategies that prioritize stability, sound economic management, and local production to reduce reliance on external financing.
“Reducing debt dependence is not just about borrowing less; it’s about creating an environment where currencies stabilize, and economic growth becomes self-sustaining,” he concluded.
Economic analysts have endorsed the AfDB’s recommendations, highlighting their relevance to Nigeria’s current challenges.
Dr. Muda Yusuf, an economist and the CEO of the Centre for Promotion of Private Enterprise, emphasized the need for Nigeria to reform its debt management strategy.
“Borrowing for infrastructure development is essential, but transparency and efficiency in fund utilization are equally critical,” Yusuf said.
On agriculture, Prof. Aminu Adamu, an agronomist, stressed that replicating Ethiopia’s agricultural model requires both political will and strategic investments.
“Achieving food self-sufficiency isn’t just about farming; it’s about creating value chains that drive economic inclusion and reduce poverty,” Adamu stated.
