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•May hit 97.3% if economy deteriorates
Nigeria may spend nearly three-quarters of its federal government revenue on servicing debt by 2030. This raises germane concerns about the country’s ability to fund infrastructure and other essential services.
The Debt Management Office (DMO) made the projection in its 2024 Debt Sustainability Analysis report released on Monday.
According to the report, the country’s debt service-to-revenue ratio is expected to rise to 71.7 per cent by 2030 under the baseline scenario, exceeding the DMO’s recommended threshold of 50 per cent.
For clarity, the projection means that for every N100 generated by the federal government, about N72 could go towards paying interest and repaying borrowed money, leaving only N28 for other government responsibilities.
The DMO projected that the ratio, which stood at 60.6 per cent in 2024, would drop to 44.9 per cent in 2025 before rising again to 51 per cent in 2026.
It is expected to increase further to 57.1 per cent in 2027, 57.4 per cent in 2028 and 67.3 per cent in 2029 before reaching 71.7 per cent in 2030.
Under a more difficult economic scenario, the situation could be worse, with debt servicing projected to consume 97.3 per cent of government revenue by 2030.
The DMO attributed the rising pressure to debt servicing costs growing faster than government revenue.
Its worst-case scenario assumes a 30 per cent depreciation of the naira, a two per cent decline in real Gross Domestic Product (GDP) and a 2.5 per cent reduction in government revenue.
By comparison, the baseline projection assumes an exchange rate of N1,500 to the dollar, economic growth of 4.8 per cent and a primary budget surplus of 3.8 per cent.
Interestingly, the report projected that Nigeria’s public debt-to-GDP ratio would decline from 53.7 per cent in 2024 to 27.3 per cent by 2030 under the baseline scenario.
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However, the expected decline in the debt-to-GDP ratio does not remove concerns about the growing amount of government revenue required to meet debt obligations.
The DMO described Nigeria’s public debt position as moderately sustainable but highly exposed to weak revenue generation, exchange rate depreciation and global economic uncertainties.
It also identified significant financing, refinancing and foreign exchange risks in the country’s debt portfolio.
The report noted that Nigeria’s average Eurobond spread stood at 975.58 basis points between October 2 and December 31, 2024, above the 600-basis-point risk threshold.
It also identified risks associated with short-term borrowing, noting that the annual increase in the share of short-term debt in total public debt stood at 1.8 per cent, above the one per cent threshold.
Foreign investors held 49 per cent of Nigeria’s public debt, also exceeding the 45 per cent threshold and exposing the country to exchange rate risks.
To address the challenges, the DMO recommended stronger revenue generation through tax reforms, a wider tax base, technology adoption and improved tax compliance.
It also called for continued implementation of the petrol subsidy removal and maintenance of a unified and flexible exchange rate system.
The agency urged the government to improve spending efficiency by directing more resources towards investments that can stimulate economic growth and expand its revenue base.
It further recommended the possible sale or privatisation of public assets and greater use of concessional loans, which generally attract lower interest rates and longer repayment periods.
The report’s projections highlight the pressure on Nigeria’s public finances, as increasing debt obligations could leave the government with fewer resources to invest in infrastructure, healthcare, education and other development priorities.
