African nations are projected to spend close to 30 per cent of their revenue servicing debts in 2025, according to a United Nations (UN) Report titled World Economic Situation and Prospects.
Close to 25 countries in Africa have net interest payments exceeding 10 per cent of revenue, the report highlighted. This comes against subdued growth prediction, with 1.4 per cent growth expected in 2025 from 0.7 per cent in 2024.
In contrast, South Asia and East Asia are both projected to register a growth of 4.6 per cent, noted the report produced by the United Nations Department of Economic and Social Affairs (UN DESA) in partnership with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commission.
“Rising debt-servicing burdens is diverting resources away from vital public services and investment, especially in Africa,” Nagesh Kumar, former director, United Nations Economic and Social Commission of Asia and the Pacific, said at a press conference held on January 9, 2024.
These lingering debt challenges will continue to burden developing countries and reduce their ability to invest in productive capacities and stimulate economic growth.
In Egypt, for instance, interest payments constituted more than 70 per cent of government revenues in 2024. The figure is 25 per cent for Angola, Ghana, Kenya, Malawi, and Nigeria. The debt crisis can threaten sustainable development prospects in Africa.
“When a developed country like Nigeria borrows, the terms at which the money is made available to them becomes onerous. That is what leads to debt burden for countries that need that money the most,” Kumar told Down to Earth (DTE) at the press briefing.
To bring a lasting solution to the debt crisis, the lending capacity of multilateral development banks (MDBs) needs to be expanded. This means advanced economies, that are major shareholders of MDBs, should enhance the capital of the banks, he added.
Another concern for Africa is stalled poverty reduction. The report notes that while sub-Saharan Africa made progress between 1990 and 2015, the reduction of extreme poverty has since halted due to slow, non-inclusive economic growth and a series of shocks such as extreme weather events, local conflicts, and the COVID-19 pandemic’s outsized impact on poverty.
Overall, 2025 is expected to be a lackadaisical year. The global economy is estimated to grow at 2.8 per cent in 2025, unchanged from 2024, the report highlighted.
The impacts of the COVID-19 pandemic continue to linger. The growth remains below the pre-pandemic average of 3.2 per cent due to weak investment, sluggish productivity growth, and high debt levels.
“Countries cannot ignore these perils. In our interconnected economy, shocks on one side of the world push up prices on the other. Every country is affected and must be part of the solution— building on progress made,” António Guterres, United Nations Secretary-General, said in the foreword to the report.
As for trade, it is expected to grow by 3.2 per cent in 2025, following a rebound of 3.4 per cent in 2024. This is driven by improved exports of manufactured goods from Asia and strong services trade.
Unilateral trade measures like Carbon Border Adjustment Mechanism (CBAM) — which will tax imports like iron, steel, cement, aluminium, and fertilisers based on their greenhouse gas (GHG) emission intensities — will hit a lot of countries, including India, Kumar told DTE.
“However, there are possibilities of finding ways around it. We are discussing whether India should be holding its own carbon taxes, through which the country can earn some revenue. This can be recycled to help the industries meet the climate goals,” he explained.
Having said that, the expert also said India should also prepare its industries to meet climate targets. “Both, industries and the government, need to work together and invest in sustainability,” he added.
Inflation is likely to decrease from 4 per cent in 2024 to 3.4 per cent in 2025, providing much needed relief to households and businesses. This also means that major central banks could respond by further cutting interest rates. However, inflation could remain above recent historical averages in many developing countries, with one in five projected to face double-digit levels in 2025.
The UN estimates that India’s Gross Development product (GDP) is projected to grow by 6.6 per cent in 2025, compared to 2024’s 6.8 per cent.
Economic growth in 2025 is expected to be driven by robust private consumption and investment, strong export growth in services and certain goods categories such as pharmaceuticals and electronics. The economy will also benefit from the expansion in manufacturing and services.
It is also estimated that the consumer inflation price will fall to 4.3 per cent in 2025, from an estimated 4.8 per cent in 2024.
India could also tap into mineral reserves, Kumar stated. The country accounts for over 5 per cent of global reserves in rare earth elements but contributes to less than 1 per cent of global production.
However, Kumar added that benefits from minerals are not a given. Good governance is essential. This includes consent by local communities, equitable benefit-sharing and effective enforcement of human rights and labour standards.