Nigeria’s spiraling debt profile and huge budget deficits portend great danger to the economy and the citizens. The latest report that the country’s debt stock may increase to N95 trillion, about eight times what it was 10 years ago, is scary and calls for caution. It requires urgent attention and prudent management of scarce national resources. Yet, the federal government is still on a borrowing spree that may compound the debt burden even further.
The National Assembly had on December 30, 2023, approved President Bola Tinubu’s request for the securitisation of the N7.3 trillion owed the Central Bank of Nigeria (CBN) by the federal government. Securitisation is a method by which government can sell part of its loan portfolios to investors in the form of securities. Its inclusion in the Debt Management Office (DMO) database will push Nigeria’s public debt stock to over N95 trillion in the months ahead.
The approval of the President’s loan request came barely eight months after ex-President Muhammadu Buhari converted N22.7 trillion via Ways & Means advances from the CBN to 40-year bonds at 9 per cent interest, with a three-year moratorium. The total debt currently owed the CBN by the federal government has surged to N26.95 trillion as of May 2023 before the securitisation process. This enables the N22.7 trillion Ways & Means loans to be added to the country’s public debt. In September, the DMO disclosed that Nigeria’s public debt rose to N87.38 trillion in the first quarter (Q1’23), from N49.85 trillion. It increased to N87.91 trillion at the end of Q3, 2023. Also, the debt the federal government owed the CBN reached an all-time high of N4.36 trillion as of June 2023. This excludes overdrafts from the CBN and the debts owed by the 36 state governments and the Federal Capital Territory (FCT).
No doubt, Nigeria’s rising debt burden is worrisome, especially when revenue generation is declining. The country’s debt-to-gross domestic product (GDP) ratio increased from 25 per cent to 40 per cent since 2021. According to World Bank, debt service costs are taking more than 96 per cent of government revenues, up from 83 per cent in 2021. The federal government has confirmed it. Currently, Nigeria’s indebtedness to the World Bank Group has exceeded N7 trillion. This represents an increase of about 125 per cent in the last eight years.
Besides, Nigeria’s debt to China has increased by 209 per cent over the last eight years. As of December 2022, it stood at $4.29 billion. Data from the World Bank showed that the federal government spent 96.3 per cent of its revenue on servicing debts in 2022. This has kept Nigeria’s public debt stock at 38 per cent of the GDP and pushed the debt service-to-revenue ratio from 83.2 per cent in 2021 to 96.3 per cent in 2023. This represents about 12.9 per cent rise.
The DMO recently said that N15.5 trillion inflows would be needed in order to achieve sustainable debt. The 2024 budget has a deficit of N9.18 trillion or 3.88 per cent of the GDP. This means that the government will borrow more to finance the N9.18 deficit projected in the budget. With a debt stock-to-GDP ratio below the 25 per cent threshold, the economy is on the edge. This ranks Nigeria among the lowest debt burden nations globally. Nigeria’s debt service-to-revenue ratio peaked at 100 per cent in 2022.
According to the World Bank, Nigeria’s fiscal deficit was estimated at 6 per cent of GDP in 2024. This breaches the stipulated limit for the federal fiscal deficit of 3 per cent. The World Bank and the International Monetary Fund (IMF) have predicted that Nigeria’s fiscal and debt pressures will continue to rise this year and beyond. We enjoin the government to strengthen the economy by restoring macroeconomic stability and reduce the cost of governance.
It should increase non-oil revenues, tighten monetary policies and reduce inflation currently at 28.2 per cent. Chief Olusegun Obasanjo’s position that Nigeria and many African countries may find it difficult to secure debt relief again, considering the accumulation of debts and mismanagement of loans, cannot be faulted. Nigeria secured debt relief worth $18 billion in April 2006 when it made the final payment and was cleared of the Paris Club debt. This was achieved by President Obasanjo and Finance Minister, Dr. Ngozi Okonjo-Iweala.
Unfortunately, Nigeria has fallen into a huge debt trap. Though the recent cut in the presidential entourage for foreign trips is a welcome development, it is not enough. The money spent on federal lawmakers needs to be reduced. Besides, the unification of the exchange rate markets has not yielded the expected results as the naira continues to fall against major foreign currencies.
The government must overcome the debt trap and reduce the amount spent on debt servicing by using three main financial options. These include approaching the IMF for a policy support instrument, debt conversion and debt restructuring. Let the government demonstrate that it has the capacity to initiate and implement sound economic policies that can stimulate the economy and improve the welfare of the people.