Nigeria’s 2025 economic outlook is not cheering. The rising debt stock, debt servicing, naira depreciation, and foreign exchange volatility, have been projected to increase the country’s total debt profile to N187.7trillion by year’s end, as against N134.67trillion in 2024. According to report by Cardinalstone, the accumulated debt is fueled by the recent federal government’s issuance of dollar-denominated domestic bonds of $900 billion, Treasury Bills, and the recent return to the Eurobond market to raise $2.20billion.
The sharp rise in debt stock has heightened concerns about Nigeria’s debt sustainability as the nation’s debt has surged significantly at a record level in recent months, rising from N49.85trillion in Q1, 2023 to N134.3trillion by the end of Q1, 2024. This reflects the impact of policy-induced naira depreciation, government’s excessive borrowing, and increasing debt service costs. The Debt Management Office (DMO) in a recent data confirmed this concern. It stated that the economy has accumulated N63trillion ($43billion) as external debt. This accounts for 47 percent of the total debt stock as of Q2, 2024.
The federal government took the lion share, having borrowed a total of N56trillion, while the sub-nationals, plus the Federal Capital Territory (FCT) have N7trillion as external debt. A cursory look at the figures shows that the federal government borrowed more from the domestic market, which accounts for 53 per cent of the debt profile or N66trn. All of this has defiled DMO’s self-imposed public debt ceiling of 40 percent as outlined in the agency’s Medium-Term Debt Management Strategy. Statistics also show that the federal government has piled up N4trillion unfunded deficit in twelve months.
According to data from global financial institutions, Nigeria is gradually reaching its limits on borrowing. Though Nigeria’s current public debt-to-GDP ratio is slightly below the International Monetary Fund (IMF’s) 60 per cent benchmark for emerging market countries, the country’s weak revenue profile and foreign exchange (FX) volatility risks could escalate debt levels and worsen the already strained economy
While the debt stock is ever increasing, debt-to-service ratio remains disturbingly high. This means that more capital expenditure will be required to pay off the accumulated debts. This also implies a debt-to-service/ revenue ratio of 162 per cent, up from the 128 per cent recorded in the First-Half of 2023, indicating that the federal government is spending huge amount to meet debt commitments. The danger is that Nigeria could possibly default on notable debt obligations. For instance, indebtedness to China has reportedly reached all-time high of 209 per cent in the last 8 years. With a debt overhang of $17.1billion to the World Bank’s International Development Association (IDA), Nigeria has officially become the third largest debtor to the World Bank Group.
Data from the DMO revealed that Nigeria serviced its external debt to the International Monetary Fund(IMF) with about $1.22billion during the past nine months(January-September) of 2024 The payments were made as part of principal repayments for three consecutive quarters, from Q4 2023 to Q2,2024. Latest figures from the DMO showed that the federal government exceeded its domestic borrowing for 2024 by N4trillion. This represents 67 percent above the budgeted amount. Details of the domestic borrowing activities of the government from January to November 2024 showed an excess borrowing of N2.93trillion or 49 per cent above the target for November.
A breakdown shows that the government borrowed N8.93trillion from domestic investors for the months under review as against what happened in 2024 financial year. If the trend is not checked, the federal government may end up borrowing much more this year, part of which will be deployed to finance the deficit contained in the 2025 budget. On the average, Nigeria spends about 95 per cent of its revenue on debt repayment annually. Moody’s recently warned that Nigeria’s debt interest payment could consume more than 36 per cent of the federal government’s revenue in 2025.
We reiterate that borrowing per se is not the problem. However, Nigeria’s aggressive borrowings have often been for consumption rather than production that should generate the needed repayment. Also, Nigeria’s increasing debt has not translated into meaningful economic growth and development. This means that the economy risks prolonged economic stagnation and heightened fiscal vulnerability without effective strategies to bolster revenue and reduce borrowing. In all, the economy needs a new direction, a detailed rescue plan and huge investments across different areas of the economy. Emphasis should be placed on diversification, with target on boosting exports. Henceforth, borrowing must be done with utmost caution. Let the government focus on economic growth and job creation.