By Ibiyemi Mathew
The African Development Bank (AfDB) has warned Nigeria and other economies of Africa that weakened demand for financial services could increase the risks to financial stability as African central banks raise interest rates.
Recall that the Central Bank of Nigeria (CBN), on Wednesday, raised its benchmark lending rate to 18.5 per cent, from 18 per cent, in an aggressive push to contain the nation’s inflationary pressure.
The AfDB President, Dr Akinwumi Adesina, gave this warning this while inaugurating the African Economic Outlook (AEO) 2023 at the on-going 2023 AfDB Annual Meetings in Sharm El Sheik.
According to Adesina, “the outlook report shows that 25 African countries that are either in high risk or in debt distress saw highest increases in debt service payments.
“The longer the global monetary policy of raising interest rates, the higher debt vulnerabilities countries will face. This is especially critical as the debt service payments due in 2023–2025 will rise from $22.2 billion to $26.7 billion, which could lead to more debt distress.
“Challenging is the high level of domestic debt that needs to be restructured. Short tenor of these debts, as well as the high coupon rates they incur, further complicates debt vulnerabilities for many countries. It is clear from the report that domestic debt restructuring will be equally important in the future unless banks are supported with capital and liquidity buffers,” he said.
The AfDB President also noted that Africa economies are projected to grow by 4.1 per cent in 2023 and 4.3 per cent in 2024.
According to him, the economies on the continent have shown remarkable resilience in spite of the multiple and dynamic shocks it faced.
“These multiple and dynamic shocks have weighed on Africa’s growth momentum, with growth in real Gross Domestic Product (GDP) estimated at 3.8 per cent in 2022.
“This is down from 4.8 per cent in 2021. The GDP growth in 2022 is above the global average of 3.4 per cent.
“The outlook remains positive and stable, with a projected rebound to four per cent in 2023 and further consolidation to 4.3 per cent in 2024,”he noted.
Adesina, said Africa had a great potential to pursue green growth and climate objectives to accelerate economic growth, given its enormous advantages.