Despite trillions of naira deployed annually to service the nation’s bourgeoning debt, the World Bank has approved Nigeria’s fresh loan request of $1.13billion. The loan, the bank says, will be used to finance projects to enhance the quality of education, households’ needs, community resilience as well as improved nutrition.
The World Bank also approved additional $80 million for ‘Accelerating Nutrition Result’ 2.0 project and $500million for government’s quality basic education tagged, HOPE. The Federal Government had in February this year applied to the financial lender for a loan of $2.2billion to execute projects cutting across six different projects in the country. In 2024 alone, Nigeria received $1.5billion from the World Bank for key development initiatives meant to strengthen the nation’s ability to mobilise resources and maintain economic stability.
Although there is nothing basically wrong with borrowing per se, we also contend that everything is wrong with borrowing if the loans are not used for targeted projects. We loathe borrowing money to fund consumption and other worthless projects meant to defraud the citizens. Sadly, the federal and state governments have been on borrowing binge since 1999 when the current political dispensation commenced. In spite of the borrowing spree, the country is still littered with many abandoned gigantic projects, roads and bridges.
Almost all the 36 states are servicing unpaid loans worth trillions of naira. Some states have even borrowed to the extent that they cannot sustain them. To avoid debt overhang and its unpleasant consequences, the federal and sub-national governments should soft-pedal on excessive borrowing. The unbridled borrowing will definitely plunge the country and future generations into needless debts. Currently, Nigeria’s debt stock has reached a record high of N145trillion as of the end of 2024 compared to N97.3trillion in 2023.
Last year, Nigeria borrowed $2.2billion from the World Bank to partly finance the N9.7trillion deficit contained in the 2024 budget. Nigeria’s loan exposure to the World Bank’s International Development Association (IDA) has risen to over $17billion as of September 2024. This places Nigeria on the third spot on its top borrowers’ list. Data from the Debt Management Office (DMO) showed that Nigeria serviced its external debt to the International Monetary Fund (IMF) with about $1.22billion from January to September 2023. The payments were made as part of principal repayments for three consecutive quarters, from Q4 2023 to Q2, 2024.
An analysis of Nigeria’s public debt on a year-on-year shows an increase of N47.32trillion, representing 48.58 per cent rise from December 2023 to December 2024, though Nigeria’s debt servicing to the IMF has been reduced to 64.42 per cent within the last one year. In 2020, IMF granted Nigeria a loan of $3.4billion emergency financial assistance. The loan was approved under the Rapid Financial Instrument by the Executive Board of the bank to address challenges arising from the economic impact of COVID-19 in the country.
Available statistics show that the Federal Government exceeded its domestic borrowing for 2024 by N4trillion. This represents 67 per cent above the budgeted amount. 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. Experts have often warned that if the trend is not checked, the Federal Government may end up borrowing more than N10 trillion by end of the year.
This is 18 per cent higher than the N7.8trn for 2024.
On the average, Nigeria spends about 95 per cent of its revenue on debt repayment annually. It also exceeded both recurrent and capital expenditures for 2024 fiscal year. Unfortunately, Nigeria’s increasing debt has not translated into meaningful economic growth and development. If the borrowing spree is not stopped forthwith, the economy risks prolonged economic stagnation and heightened fiscal vulnerability. Therefore, let the government come up with effective strategies to bolster revenue, reduce borrowing costs, and optimise debt management in the short and medium terms.
No doubt, the rising public debt will elevate debt-to-service cost. Nigeria’s debt-to-GDP ratio has also increased from 25 per cent to 40 per cent since 2021, and is projected to reach 46.8 per cent by the end of 2025. The increasing debt profile, particularly in naira terms, raises concerns about debt sustainability, especially with the exchange rate volatility driving up local currency cost of external obligations.
In all, we urge the Federal Government to stop the borrowing spree in the best interest of the economy. Henceforth, borrowing must be done with caution. The National Assembly should carefully scrutinise every loan request from the presidency. When necessary, such loan request must focus on economic growth, job creation and improving the standard of living of the people.