Five sub-Saharan African (SSA) countries—Angola, Ghana, Kenya, Mozambique and Nigeria—face debt vulnerabilities amid tighter global financial conditions driven by US tariff-related inflation and prolonged high interest rates. This article evaluates their fiscal outlooks by examining their budgetary challenges and funding strategies and highlighting risks to their fiscal sustainability and development spending.

Key findings

  • Persistent fiscal pressures: Budgets across these nations suffer from overestimated revenues and expenditure overruns, leading to growing fiscal deficits and rising debt-servicing costs.
  • Global market impacts: Higher-than-expected global interest rates will increase borrowing costs, straining fiscal positions due to elevated debt-servicing requirements.
  • Country-specific strategies: Angola will prioritize its agreement with bilateral creditors, while Mozambique aims to renew its IMF (International Monetary Fund) program. Kenya and Nigeria, having recently accessed international bond markets, are likely to pursue further commercial funding. Ghana and Mozambique have room to issue domestic debt, while Angola and Mozambique may resort to debt monetization.
  • Development risks: Rising debt-servicing costs threaten delays or cancellations of social and infrastructure projects, increasing reliance on concessional financing in 2025.

Part 1: Country-specific budgetary landscapes

Nigeria: High fiscal risks

Nigeria’s 2025 budget, adjusted to 54.99 trillion naira (US$33.1 billion), emphasizes capital spending (43.6 percent) over recurrent expenditure (24.8 percent). However, debt servicing consumes 26 percent of the budget, reflecting a heavy burden. The fiscal deficit is projected at 1.52 percent of gross domestic product (GDP), assuming revenues of 36.35 trillion naira (US$21.9 billion). Yet, optimistic assumptions undermine credibility: a 1,500-naira-per-dollar exchange rate, a US$75-per-barrel oil price and a 4.6-percent GDP growth rate. S&P Global Market Intelligence forecasts a weaker exchange rate (1,700 naira per US dollar), a US$74 oil price and a 3.2-percent GDP growth rate, projecting a deficit of 4.6 percent of GDP. Debt servicing currently absorbs 45 percent of government revenue, with external-debt interest payments doubling since 2022 to 4 percent of foreign-exchange earnings. This trajectory risks market access and fiscal sustainability.

Kenya: Shifting priorities

Kenya’s 2025 draft budget projects an 11.6-percent expenditure increase to 4.3 trillion shillings (US$33.1 billion), focusing on developmental spending (up 34.2 percent). Revenue is expected to rise 14.9 percent to 3.5 trillion shillings, driven by tax reforms, assuming 5.3-percent GDP growth and 3.7-percent inflation, aligned with our forecasts. However, social unrest over tax hikes, as seen in 2024, poses risks. The government aims to cut the deficit to 759.5 billion shillings (3.9 percent of GDP), down 1.2 percent, supporting the IMF’s fiscal-consolidation goals of reducing public debt (65.5 percent of GDP). Borrowing will shift toward domestic markets, reducing external reliance.

Mozambique: Credibility challenges

Mozambique’s budget lacks reliability due to consistent revenue overestimates and overspending since 2018, particularly on civil-service wages, which have exceeded projections by 1–3 percent of GDP. Despite moderate inflation (6.74 percent from 2021 to 2024), double-digit public-sector wage hikes have strained finances. Domestic borrowing doubled from 2020 to 400 billion meticais (US$6.2 billion) in 2024, comprising 37 percent of total debt. A US$900 million Eurobond repayment looms in 2028, and delayed LNG (liquefied natural gas) projects worsen fiscal prospects. We forecast a deficit increase to 5.6 percent of GDP (2024–2026) from 3.8 percent (2021–2023). Post-election unrest in 2024 cost US$664 million, prompting debt-restructuring talks under new Finance Minister Carla Louveira.

Angola: Diversification versus debt costs

Angola’s fiscal position has deteriorated from surpluses to deficits, with 2024 and 2025 forecasts at 1.12 percent and 3.18 percent of GDP, respectively, due to unremoved fuel and food subsidies and expansionary policies for diversification. The 2025 budget plans borrowing 14.6 trillion kwanzas (US$14.9 billion), split evenly between domestic and external sources. With 80 percent of its debt in US dollars, exchange-rate volatility drives servicing costs to more than 60 percent of the budget. Public debt has surged to 57.4 trillion kwanzas (US$58.61 billion), or 63 percent of GDP. Finance Minister Vera Daves de Sousa has projected debt servicing at 13.2 trillion kwanzas, with revenues at 14.6 trillion kwanzas.

Ghana: IMF-aligned consolidation

Ghana’s 2025 budget of 290.97 billion cedis (US$18.8 billion), up 16 percent, aligns with its IMF Extended Credit Facility (ECF) targeting a 1.5-percent primary surplus and non-oil revenue growth. It projects a 4.1-percent GDP deficit (down from 5 percent in 2024) and a 0.5-percent primary surplus. Financing will rely on short-term domestic debt and foreign inflows (US$720 million from the IMF and US$600 million from the World Bank). Debt restructuring under the G20 Common Framework cut public debt from 79.2 percent to 61.8 percent of GDP by December 2024. However, fiscal risks persist, with domestic debt servicing projected at 150.3 billion cedis (11.6 percent of GDP) and external payments at US$8.7 billion (10.9 percent of GDP) over four years.

Part 2: Funding strategies

International market access

Nigeria and Kenya have successfully tapped global bond markets. Nigeria raised US$2.2 billion in December 2024 through 6.5- and 10-year bonds at 9.62 percent and 10.37 percent, with demand reaching US$9 billion. Yields have since fallen below 10 percent, signaling market confidence. Kenya issued US$900 million in 2027 bonds and a US$1.5-billion 11-year bond at 9.95 percent, with demand exceeding US$4.9 billion. Kenya is also negotiating a US$1.5-billion UAE (United Arab Emirates) loan.

Angola, unable to access conventional markets, issued US$729 million in 2030 bonds at 10.95 percent via a total-return swap (TRS) with J.P. Morgan Securities, yielding US$600 million. This costly structure reflects Angola’s limited market access. Angola plans to issue US$1.5 billion in 2025 to refinance a maturing US$864.4 million bond, alongside World Bank and African Development Bank (AfDB) financing.

Mozambique has avoided commercial debt, focusing instead on renewing its IMF facility (expiring May 2025). Its US$900-million Eurobond matures in 2031, with creditors including bondholders, the World Bank, China and the IMF. A shift to a flexible exchange rate and lower bank-reserve requirements (currently 29–29.5 percent) may support IMF negotiations.

Ghana has relied on domestic Treasury bills post-restructuring, with limited external borrowing (1.5 percent of GDP) from IMF and World Bank programs. Debt relief of US$4.4 billion through 2026 will support declining debt metrics.

Domestic debt capacity

Sovereign debt

Sub-Saharan African (SSA) banks typically hold more sovereign-debt assets than other emerging market (EM) banks, averaging 30 percent of total banking assets. Within the SSA region, Ghanaian banks recorded the highest historical peak ratio of sovereign-debt holdings to total assets at 45.7 percent in December 2021. We evaluate banks’ capacity to absorb additional sovereign debt domestically by analyzing their current holdings against their historical peak ratios. Recent data shows Angola, Ghana, Kenya, Mozambique and Nigeria hold sovereign-debt assets below their historical peaks. These countries could potentially increase their sovereign-debt assets, with Ghana and Mozambique having the most capacity.

Among these five countries, Ghana’s banking sector currently holds the lowest proportion of sovereign debt relative to total sector assets at 18.8 percent, as of December 2024. This reduction follows a strategic decrease from a peak of 45.7 percent in sovereign-debt exposure by Ghanaian banks ahead of the 2022 restructuring. In contrast, Kenya’s banking sector holds the highest proportion of sovereign debt, at 31.5 percent of total assets as of September 2024. This is attributed to large fiscal deficits and limited access to international markets. Historical payment arrears to government contractors have increased perceived credit risks associated with the private sector. Kenya, Angola and Nigeria have not significantly expanded their non-sovereign-debt assets, leading to substantial accumulations of sovereign debt since 2009, 2015 and 2019, respectively. As such, their current sovereign-debt holdings are much closer to historical peaks, constraining their capacity to absorb additional sovereign-debt assets in the near term.

Debt-monetization risks

Angola and Mozambique will likely increase debt monetization—borrowing from central banks, effectively printing money. Angola’s central bank has ramped up government lending, while Mozambique has capped such financing at 10 percent of prior revenues (8 percent of GDP). Ghana has reduced central bank financing through debt restructuring, and Nigeria plans to phase out this practice.

Debt-servicing pressures

Across these countries, debt servicing consumes growing budget shares, crowding out education, healthcare and infrastructure. In Angola, it exceeds 60 percent of spending, and in Nigeria, 45 percent of revenue, while significant domestic and external payments loom in Ghana. This trend risks long-term development, with concessional financing likely to rise in 2025.

Conclusion

Angola, Ghana, Kenya, Mozambique and Nigeria face mounting fiscal challenges in 2025, driven by revenue shortfalls, expenditure pressures and global market constraints. While Nigeria and Kenya leverage international markets, Angola and Mozambique grapple with costly or limited options, and Ghana balances IMF-guided consolidation. Rising debt servicing threatens development goals, underscoring the need for prudent fiscal management and diversified funding strategies.


Source: internationalbanker.com