The Nigerian government’s efforts to finance its 2024 budget deficit have blown its debt sky-high to N134.3 trillion, a staggering 3.88 percent of Gross Domestic Product (GDP) with debt-servicing suffocating the nation’s economic growth.
Meanwhile, experts are warning of a negative relationship between debt burden and economic growth.
Economic and finance experts are concerned about its implications for the future.
By Q2 2024, Nigeria’s public debt hit N134.3 trillion ($91.3 billion), with a projected budget deficit of N9.18 trillion. The cost of servicing this debt surged by 66 percent in Q2 2024, reaching N3.8 trillion, which now accounts for 65 percent of recurrent expenditures.
Analysts note that even with improved revenue collection, the debt service-to-revenue ratio poses a major drain on public resources, diverting funds from critical areas like infrastructure and essential services, potentially reducing investor confidence and slowing down economic growth.
Large debt servicing costs limit government spending in productive areas, leading to lower credit ratings and potentially higher borrowing costs.
Experts like Professor Adeola Adenikinju, President of the Nigerian Economic Society, point to a deceleration in growth rates—from 7.7 percent (1999-2007) to just 2.86 percent (2015-2023).
Between 1999 and 2007, the Nigerian economy grew at an annual average of 7.7 percent. The growth rate decelerated to 6.0 percent between 2008 and 2015 and declined sharply to an average of 2.86 percent between 2015 and 2023.
The country’s GDP grew by 3.19 percent in Q2 2024.
“At the current rate of growth, it would take Nigeria 25 years to double the size of the economy, compared to just nine years at the 7.7 percent growth rate recorded between 1999 and 2007,” according to Adenikinju, the former Monetary Policy Committee (MPC) member.
He highlighted some constraints hindering Nigeria from achieving its potential which include high fiscal deficits, debt servicing obligations, weak institutions, poor governance, and corruption.
Adenikinju also pointed out that the inflation rate at 32.71 percent is the 10th highest rate in the world. So, the country, though large in population, is relatively weak in consuming capacity as the minimum wage is equivalent to US$43.75 per month, or US$0.10 per hour.
The inflation rate rose from 24 percent in March 2023 to 32.17 percent in September 2024. Both core and food inflation have increased significantly. In addition, the exchange rate has depreciated massively in the last year.
According to Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co., Nigeria’s swelling debt profile is largely fueled by naira depreciation.
In an exclusive conversation with the Nigerian Tribune, Olubunmi clarified that the situation may not be as dire as perceived. He explained that since a significant portion of government revenues are denominated in dollars, the conversion to naira at higher exchange rates actually inflates the debt value, presenting a more favourable outlook.
“That is why in dollar terms, the leverage ratio is low. And also, having said that, in terms of debt servicing, although debt to government revenue is still not where it should be compared to where we were last year or two years ago things seem to be a bit better.
“The question now is, how this will affect the average Nigerian. Of course, we have to repay that particular obligation. But I think, for the average Nigerian, we need to ask the government how they are using the loans they are taking
“Does the government use them to better our lives? We need to hold the government more accountable by scrutinising the projects they claim to do with the funds and know-how positive it has been on the average citizen because whether we like it or not, it is our future revenue, our future income that they are using to service these debts,“ Olubunmi stated.
He said perhaps the monetary authorities are watching the impact of high interest rate on government borrowings and debt servicing otherwise, interest rates in Nigeria could have been higher today.
Weighing in, the Chief Executive Officer of Financial Derivatives Limited, Mr. Bismarck Rewane warns that while debt accumulation itself isn’t inherently bad, it can become a trap if used irresponsibly.
For instance, debt that finances essential services and infrastructure can benefit the country, but if directed toward consumption, it becomes a burden.
He said that debt accumulation is not bad in itself but its utilisation would determine if it would become a trap.
Some experts describe debt trap as a situation where new loans are taken to repay existing loans, compounding the debt situation.
According to him, proper use of debt could lead to better infrastructure and enhanced public services like healthcare, education, etc., but it could become a trap when its utilisation is directed toward consumption, corruption and mismanagement.
Increasing bilateral and multilateral debt indicated rising financial commitments, increased borrowing for development projects and budgetary support that “suggest potential future financial pressure if the growth in debt is not matched by economic growth and revenue generation.”
He said: “The debt service costs of N8 trillion in 2023 could have been used for 5,000 km of dual carriage roads at N800 million per km; 1,600 schools at N5 billion per school; 80,000 primary healthcare facilities at N100 million per healthcare and 5,000MW of solar power at N1.”
However, Finance Minister Wale Edun remains optimistic, promising better days ahead through targeted policies.
According to him, President Bola Ahmed Tinubu’s reforms are yielding the desired fruits.
At a recent investor meeting in Washington DC, Edun noted that debt servicing, previously at 100 percent of revenues, was reduced to about 60 percent this year.
Edun highlighted plans to reduce the budget deficit from 6.5 percent to 4.4 percent of GDP and is hopeful of achieving the target of 4 percent of GDP for 2024.
He also expressed a commitment to increasing revenue to 23 percent of GDP, aiming to reset the macro economy for sustained growth.
Budget Office Director-General Tanimu Yakubu, reported that by August 2024, revenue performance reached N12.6 trillion, though slightly below the N13.1 trillion projection, leaving a N500 billion shortfall.
Revenue generation remains a critical challenge, especially with falling oil output.
Dr. Muda Yusuf of the Centre for the Promotion of Private Enterprise (CPPE) cautioned that the government’s N18 trillion revenue target for 2024 is at risk.
Oil, traditionally a major revenue source, has seen declining returns, pushing Nigeria further into debt to bridge fiscal gaps.
The CBN’s Quarterly Statistical Bulletin shows that government revenue reached only N3.7 trillion in H1 2024, while expenditures totaled N12.2 trillion, creating a projected 7.3 percent fiscal deficit for the year.
Capital expenditure, which is crucial for economic growth dropped by 27 percent in Q2 2024 to N856.5 billion, accounting for only 13 percent of total expenditure.
Such a decline limits developmental investments, especially as debt service costs dominate the budget.
Reliance on domestic borrowing is another concern. Between January and August 2024, the Debt Management Office (DMO) borrowed N4.73 trillion through bonds, catering to demand from Pension Fund Administrators and other investors.
However, high interest rates—now over 20 percent—pose risks, potentially creating a debt trap.
To attract investors, the DMO has reissued bonds at elevated rates, offering short-term relief but increasing long-term repayment costs, possibly necessitating new borrowing to service existing debts.
Professor Adenikinju, addressing the Chartered Institute of Bankers of Nigeria in 2024, highlighted policy options to unlock Nigeria’s economic potential.
He advocated macroeconomic stability measures, including curbing inflation, stabilising exchange rates, lowering capital costs, and adopting fiscal discipline to reduce public debt.
He also emphasised the need for economic diversification beyond oil by investing in agro-industrialisation, enhancing local manufacturing, and promoting digital innovation.
The Central Bank of Nigeria (CBN) led a delegation of key stakeholders, including the Nigeria Inter-Bank Settlement System (NIBSS), major banks and International Money Transfer Operators (IMTOs), to engage the Nigerian diaspora community in Houston, Texas. The strategic forum, titled “Optimising Remittances to Nigeria: A Vision for the Future,” aimed to harness the economic potential of Nigeria’s global diaspora. This collaborative effort seeks to streamline remittance processes, foster partnerships and unlock opportunities for economic growth.
Speaking at the forum with the theme: “Optimising Remittances to Nigeria: A Vision for the Future,” the Deputy Governor (Economic Policy), CBN, Muhammad Sani Abdullahi, told the gathering of critical stakeholders in the remittance ecosystem that the aim was to engage with the Nigerian diaspora community on opportunities to enhance remittance flows and strengthen Nigeria’s financial sector.
Reiterating Governor Olayemi Cardoso’s commitment to double the volume of capital inflows and diaspora remittances to Nigeria, Abdullahi emphasised the Bank’s commitment to “strengthening macroeconomic fundamentals to create an enabling environment where the private sector can thrive and generate quality jobs for Nigerians.”
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