Foreign loans can be a powerful tool for nations. Usually, nations leverage loans to fuel economic growth and address immediate needs. However, acquiring these loans can spiral out of control and lead many of these countries to face unsustainable levels of debt. The African Development Bank reports that Africa’s external debt has reached a record high, exceeding $824 billion in 2024.
While the total debt amount may be concerning, a more critical way to estimate a country’s debt burden is to look at the debt-to-GDP ratio. This means comparing a country’s debt to the total value of goods and services it produces. The IMF says 23 out of 54 African countries are classified as either in debt distress or at high risk, with debt-to-GDP ratios exceeding 50%. When a country’s debt approaches its GDP, it faces a significant risk of economic disaster.
In contrast, a nation with a lower debt-to-GDP ratio has a better chance of financial sustainability. It is better equipped to handle external shocks and economic downturns, which minimizes worries about debt repayment and attracts investors. According to the IMF, some African nations have managed to maintain low debt levels in 2024. These countries have kept their public debt levels below the Sub-Saharan Africa average of 43.7%. Here are the 10 African countries with the least debt burden in 2024.
1. Equatorial Guinea (8.23%)
Equatorial Guinea has the lowest debt-to-GDP ratio in Africa. The oil-rich nation benefits from its significant hydrocarbon revenue. In 2022, Equatorial Guinea saved a significant part of the hydrocarbon revenue windfall, as reflected in the large fiscal surplus. Its overall fiscal surplus is projected to increase to 2.9 percent of GDP, while the non-hydrocarbon primary deficit would improve to 19.5 percent of non-hydrocarbon GDP. This allows them to keep external borrowing in check. However, there are still concerns about dependence on a single resource and the need to diversify the economy for long-term sustainability.
2. Botswana (9.13%)
Botswana has a long history of fiscal prudence. The World Bank reports that between 1974 and 2009, Botswana achieved an average budget surplus of 10.6% of GDP. The country also has a well-established Debt Management Framework that guides its borrowing and debt servicing practices. Last year, a new state-of-the-art software developed by the Commonwealth Secretariat was rolled out in Botswana to transform how the country records and reports on its public debt portfolio of $3 billion. Botswana has managed to maintain a strong diamond industry and implemented strategic investments in infrastructure and education, all of which contribute to its economic stability and lower debt levels.
3. Chad (13.07%)
Considering its economic challenges, Chad’s relatively low debt ratio might be surprising. Currently, 42.3% of the population lives below the national poverty line. However, Chad has found ways to initiate debt relief initiatives and restructuring programs supported by international organizations like the IMF and World Bank. Chad is the first country to reach an agreement with its official and private creditors under the G20 Common Framework- a mechanism created by the Group of 20 major economies in late 2020 to help poor countries weather the fallout from the COVID-19 pandemic. However, Chad still faces rising debt risks due to its dependence on oil revenue and ongoing political insecurity. Its national debt is projected to increase by $1.4 billion between 2024 and 2029.
4. Ethiopia (13.89%)
Ethiopia has experienced significant economic growth in recent years. According to the World Bank, Ethiopia’s GDP grew at an average of nearly 10% per year over the past 15 years. While its debt has risen to finance this growth, the government has made efforts to manage it responsibly. For example, the nation also requested debt relief under the G20 Common Framework. Ethiopia focuses on infrastructure development and prioritizes investments in key sectors like agriculture and manufacturing to boost long-term economic prospects.
5. Democratic Republic of Congo (16.82%)
Despite holding vast natural resources, the Democratic Republic of Congo (DRC) grapples with a complex debt situation. However, GDP growth in the DRC remained robust at 7.8% in 2023, supported by a strong mining sector, which grew by 15.4%, contributing around 70% to overall growth. The country has also benefited from debt relief programs. While their current debt level isn’t crippling, the DRC is still considered at moderate risk of defaulting on its loans. For example, the DRC is still working to clear outstanding debts before they reached a completion point for the Heavily Indebted Poor Countries initiative in 2009, which granted them significant debt relief.
6. Namibia (17.21%)
Namibia has a decent debt-to-GDP ratio of 17.21%. According to the Bank of Namibia’s (BoN) December 2023 quarterly bulletin, by the end of September 2023, the government’s debt stock accounted for 64.8% of the GDP, demonstrating a decrease of 2.3 percentage points from the preceding year. This decline was attributed to a higher increase in quarterly GDP compared to the rise in central government debt. However, maintaining responsible fiscal management is crucial for Namibia to maintain this ratio. Namibia’s national debt is forecasted to increase between 2024 and 2029 by $2.9 billion (34.52%).
7. Mauritius (17.47%)
Mauritius is considered an upper-middle-income country with a track record of economic development. It has the second-highest GDP per capita in Africa at $31.16 thousand. Its economy thrives on Mauritius’s political stability, favorable business environment, tourism, and skilled workforce. Mauritius has a history of consistent economic growth, with an average GDP growth rate exceeding 4% in the past decade. Although its debt ratio is slightly higher than other countries, its robust economy allows it to manage its debt burden effectively.
8. Nigeria (18.00%)
Nigeria is Africa’s fourth-largest economy, with a GDP exceeding $250 billion in 2024. Nigeria’s debt is considered sustainable based on the debt-GDP and debt service ratios. However, Nigeria has seen its public debt rise significantly in recent years. Public debt in Africa’s most populous nation has risen more than sevenfold since 2015 to N108trn as of December, with 39% owed to external creditors, including multilateral and commercial lenders. The government is implementing strategies to increase revenue generation and improve debt management practices.
9. Guinea (18.08%)
According to the World Bank, public debt fell slightly to 35.5% of GDP in 2023 from 36.7% in 2022. The county’s risk of external overindebtedness is moderate, but the fiscal space for absorption of shocks is limited. The country is working with international organizations to develop a sustainable debt management plan. The AFDB projects that Guinea’s public debt will fall to 75.4% of GDP in 2024, the result of reforms supported by a new International Monetary Fund program.
10. Zimbabwe (20.28%)
Although Zimbabwe is on this list of countries with the least debt burden, Zimbabwe faces a more concerning debt burden than the other countries on the list. First, Zimbabwe has a history of economic instability. This year, its economy is expected to grow by 3.5%, which is lower than the 5.5% estimated growth there for last year. The IMF has stated that Zimbabwe is in debt distress. Along with an excessive external debt burden, the country has incurred nearly $8.3 billion of external arrears. However, since 2022, the government has been engaged in a concerted process to resolve its official debt. Zimbabwe has also received some debt relief from private creditors. Last month, China agreed to write off some of its debt. Zimbabwe also settled a $400 million loan from the African Export-Import Bank with the proceeds of its platinum exports.
The Bottom Line
Taking loans from sources, if done wisely, can help boost growth and meet pressing needs. However, Africa’s alarming amount of debt, surpassing $824 billion in 2024, serves as a warning of the dangers involved. The debt to GDP ratio highlights that nearly half of countries are facing debt challenges or are at high risk, indicating potential economic instability. Despite this concerning scenario, it also presents an opportunity for interventions and policy changes that could pave the way for a secure and prosperous future.
Amidst these difficulties, there are shining examples of success. Countries like Equatorial Guinea, Botswana, and Chad showcase how careful financial planning, smart economic diversification efforts, and participation in debt relief programs can result in debt levels to their GDPs. These nations demonstrate that with policies and strategies in place, achieving stability and resilience against external shocks is possible – instilling confidence in managing debts and maintaining economic steadiness.
For these nations mentioned above, debt levels ensure financial sustainability and attract investors who see the potential for stability and growth opportunities.
The strength of Mauritius’s booming economy and Nigeria’s efforts to enhance income generation and manage debts highlight the significance of policies in navigating the complexities of global finance.
However, obstacles remain evident in Zimbabwe’s battle with instability and debt troubles. Nevertheless, collaborative endeavors, including debt resolution processes and relief agreements, provide glimpses of optimism for overcoming these challenges and moving toward a financial future.
Achieving well-being requires a blend of sound governance, strategic investments, and international collaboration, laying the groundwork for a brighter economic horizon where countries can flourish and thrive sustainably.