Borrowing space narrows as Nigeria’s debt-to-GDP swells to 51%

For the first time in history, Nigeria’s debt-to-GDP ratio has exceeded 50 per cent, latest figures from the Debt Management Office (DMO) has revealed.

The debt-to-GDP ratio, expressed as a percentage, is a measure that compares a country’s public debt to its gross domestic product (GDP). It indicates a country’s ability to repay its debt. A higher debt-to-GDP ratio suggests that a country may have difficulty meeting its debt obligations, while a lower ratio indicates a more manageable debt level relative to the size of the economy.

Historically, Nigeria has viewed its relatively low debt-to-GDP ratio as a sign of economic resilience, suggesting there was more room to expand borrowing.

Although some African countries like Ghana have a higher debt-to-GDP ratio of about 84.9 per cent; South Africa’s ratio stood at 72.2 per cent; Kenya and Egypt had ratios of 70.1 per cent and 95.8 per cent, respectively in 2023 compared to Nigeria’s, each nation’s repayment capacity differs.

The principal challenge with Nigeria has always been the ability to meet its debt service obligations due to the high debt service-to-revenue ratio.  This has amplified experts’ calls for an urgent boost in revenue generation capabilities via strategic economic diversification efforts.

Given the peculiarities of the Nigerian situation, analysts insist that the current debt-to-GDP figure indicates that the country is approaching the limits of sustainable borrowing.

Nigeria’s public debt, according to DMO, has surged to N121 trillion. It is composed of N65.6 trillion domestic debt and $42.1 billion (N56 trillion) billion foreign liability.

As of December 2023, Nigeria’s total gross domestic product (GDP) in nominal terms was N229.9 trillion, with a real growth rate of only 2.74 per cent. This suggests that the country’s debt-to-GDP ratio has now exceeded 50 per cent for the first time. In the first quarter of 2024, Nigeria’s nominal GDP was N58.5 trillion, up from N51.2 trillion in the same period of 2023. For the second and third quarters of 2023, the nominal GDP figures were N52.1 trillion and N60.6 trillion, respectively. By the fourth quarter, GDP had risen to N65.9 trillion, bringing the trailing four-quarters GDP total to N237.5 trillion.

Based on the 2023 GDP figure of N229.9 trillion, Nigeria’s debt-to-GDP ratio is now 52.9 per cent. Using the trailing four-quarter GDP figure of N237.5 trillion, the debt-to-GDP ratio stands at 51.2 per cent. This marks the first time Nigeria has reached such a high debt-to-GDP ratio.

In the first quarter of 2024, Nigeria’s fresh borrowing amounted to N7.71 trillion. This includes N2.81 trillion as part of the new domestic borrowing of N6.06 trillion provided in the 2024 Appropriation Act and N4.90 trillion as part of the securitization of the N7.3 trillion Ways and Means Advances approved by the National Assembly.

Global ratings agency Moody’s has highlighted that Nigeria’s interest spending on debt could consume up to 36 per cent of the federal government’s revenue in 2024. The Central Bank of Nigeria’s (CBN) monetary policy has pushed interest rates for local borrowing by the federal government from an average of 12.8 per cent in 2023 to around 19 per cent in the first five months of 2024. This increase in interest rates further strains Nigeria’s fiscal capacity and raises concerns about the sustainability of its debt burden.

The significant rise in Nigeria’s debt-to-GDP ratio underscores the challenges the country faces in managing its public finances. With rising debt levels and increasing interest rates, the federal government must navigate a complex fiscal landscape to ensure economic stability and sustainable growth. According to experts, the situation calls for careful consideration of borrowing practices and fiscal policies to prevent further economic strain.