The structure of public debt portfolios in Africa has undergone a significant transformation since the mid-2000s. Largely due to external debt relief under the Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative, total public debt ratios have declined considerably, with domestic debt becoming an important component of portfolios. This report cannot conduct a comprehensive analysis of domestic debt in all 54 African countries, but the evidence from the sample of five countries studied allows some inferences to be made of broad characteristics of domestic debt and some lessons to be learned. However, this is not a representative sample of all countries in Africa, about one third of which are classified by the World Bank as conflict-affected fragile States; given their uncertain environments, it is unlikely that they will host developing domestic capital markets in the near future.
Figure 10a shows the evolution of public debt in 1995–2013 for the sample of five countries studied. On average, external debt is much lower than in the past, having decreased from over 120 per cent of GDP in 1995 to 25 per cent in 2009, before rising to 27 per cent in 2013. The decline in external debt largely reflects debt forgiveness under the Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative. These Initiatives have benefited three of the countries studied, namely Ghana, the United Republic of Tanzania and Zambia.
Domestic debt is not a recent phenomenon, as several African countries relied on this source in the 1980s, which accounted for about 11 per cent of GDP (Christensen, 2004). However, there was no discernible growth in domestic debt in the 1990s to the mid-2000s, as borrowing from the domestic market was constrained by concerns that it would induce inflationary pressures, compromise debt sustainability and crowd out private sector investments. Domestic debt considerations were significant in poverty reduction and growth facility programmes implemented in the period, with most programmes limiting the domestic financing of Governments (IMF, 2007). In Mozambique, the United Republic of Tanzania and Zambia, concerns regarding crowding out motivated limitations on domestic borrowing, while in Ghana the level and sustainability of domestic debt was the main concern behind the programme’s constraint on domestic financing. Countries that ran fiscal deficits not fully matched by donor inflows would not ordinarily issue domestic debt because the standard policy advice of IMF and the World Bank was to limit domestic borrowing. In addition, poverty reduction and growth facility programmes typically included anticipated increases in aid to retire domestic debt (IMF, 2005; IMF, 2007). A common presumption was that external assistance, both concessional loans and grants, would continue to play a key role in financing poverty reduction and growth-enhancing programmes in the foreseeable future.
However, these sources have proved volatile, procyclical and insufficient, given the scale of financing requirements in the region.
While countries have moved to replace declining aid flows by accessing non-concessional resources and seeking bilateral financing from emerging lenders such as the BRICS countries, recent data shows a steady rise in the ratio of domestic debt to GDP, implying that Governments are increasingly turning to domestic debt markets to meet net borrowing requirements. Domestic debt increased from 11 per cent of GDP in 1995 to around 19 per cent at the end of 2013 (figure 10a).
However, the aggregate figures do not show the considerable variation in domestic debt ratios across countries (figure 10b). For example, both Ghana and Kenya
Figure 10. External and domestic debt developments for selected African countries
10 11 12 13 14 15 16 17 18 19 20
0 20 40 60 80 100 120 140
1995 2000 2005 2009 2010 2011 2012 2013
(a) Domestic and external debt as percentage of GDP
PercentagePercentage
External debt (left axis) Domestic debt (right axis)
0 5 10 15 20 25 30 35
Nigeria Kenya Ghana United Rep. of
Tanzania Zambia (b) Domestic debt to GDP for selected African countries
1995 2000 2005 2009 2010 2011 2012 2013 2014
Source: Individual country debt reports; OECD, 2015a.
Note: Data in panel (a) based on sample averages for Ghana, Kenya, Nigeria, the United Republic of Tanzania and Zambia.
have maintained a steady increase in the ratio of domestic debt to GDP, from 17 per cent in 1995 to 31 per cent in 2014 in Ghana and from 16 per cent in 1995 to 27 per cent in 2014 in Kenya. In Nigeria, the United Republic of Tanzania and Zambia, domestic debt increased moderately as a share of GDP. While there is clearly a discernible increase in domestic debt as a share of GDP, the nominal figures are a greater cause for concern as the ratios in figure 10 are suppressed by the sustained high GDP growth in the selected countries in the last decade. In nominal terms, the increases in domestic debt are more prominent. For example, domestic debt increased in Ghana from $3.1 billion in 2005 to $10.8 billion in 2014 and in Kenya from $3.6 billion in 2005 to $13.4 billion in 2014 (figure 11).
Some countries in the region, such as Ghana, Kenya and Nigeria, have been able to meet a sizeable portion of their funding requirements through domestic capital markets. In general, domestic finance pools in African countries have been Figure 11. Domestic debt in selected countries
(Billions of dollars)
-5 5 15 25 35 45 55
United Rep.
of Tanzania Zambia Angola Ghana Kenya Nigeria
1995 2000 2005 2010 2014
Source: Individual country debt reports; OECD, 2015a.
fed by several years of high economic growth and the policy efforts of authorities, such as liberalization of capital accounts and adoption of sound macroeconomic, regulatory and prudential policies. A number of countries have also made substantial progress in developing their government bond markets, although progress has been somewhat slower in corporate bond markets.