AfDB Urges Smarter Use of Borrowed Funds

The African Development Bank has called on African nations to invest borrowed funds in productive sectors that support growth and development.

The African Development Bank (AfDB) has advised African countries, including Nigeria, to ensure that borrowed funds are directed towards investments that stimulate economic growth and improve living standards. The recommendation was made by Prof. Kevin Urama, the bank’s Chief Economist and Vice President for Economic Governance and Knowledge Management, during an interview in Abuja.

Speaking on the issue of debt sustainability, Urama stressed that the main concern should not be the amount of debt a country carries but the quality of that debt, the borrowing conditions and how the funds are used.

According to him, sustainable borrowing depends on investing in projects that increase economic output, create employment opportunities and improve infrastructure. He argued that when governments use loans effectively, they can generate long-term benefits that support national development and strengthen public finances.

Discussing debt sustainability, Urama warned that excessive borrowing without productive investment could reduce labour productivity and weaken overall economic performance. He pointed to findings from the African Economic Outlook, which showed that countries with high debt-to-GDP ratios often face declining debt productivity. This trend can negatively affect both labour and capital productivity, making it harder for economies to achieve sustainable growth.

The AfDB economist also cautioned against using costly short-term commercial loans to finance long-term infrastructure projects. He explained that such funding mismatches can create refinancing challenges and increase fiscal risks for governments.

Urama urged policymakers to focus on debt sustainability by ensuring that citizens experience clear benefits from borrowed funds through better infrastructure, improved public services and stronger economic opportunities. He also encouraged greater support for African-led financial solutions, including the African Financing Stability Mechanism, which aims to help countries manage debt refinancing challenges within the continent.

He concluded that stronger regional cooperation and home-grown financial strategies would help African nations reduce exposure to external shocks and global market volatility while promoting long-term economic stability.

What steps should African governments take to ensure borrowed funds deliver lasting economic benefits?