Nigeria’s public debt in race to N100trn by June, warn analysts   

•  Debt builds up on unabating borrowings

ONOME AMUGE IN LAGOS, NIGERIA

With grim statistics showing unabating borrowings by the President Bola Tinubu-led federal government, a carryover from its predecessor government led by Muhammadu Buhari, the lines appear to be straightening into one as analysts now project that Nigeria is heading steadily to a public debt position of N100 trillion or more by June this year.

The projection is based on the spate of the country’s current borrowing trajectory, which is feared to continue and head to at least one hundred trillion naira mark by mid-year. The Nigerian government is highly geared domestically and this was seen as responsible for a climb in public debt in the latest data to December 2023 released by the Debt Management Office (DMO).

Yet, the government’s domestic borrowing appetite, which has been met with some satisfaction, has not slowed its hunger to swallow more, especially from international sources, raising analysts’ fear about hitting the N100 trillion mark. In addition to its domestic borrowings, the government is actively courting international lenders to finance its infrastructure projects. While these loans may provide some short-term relief, they come with high interest rates and strict repayment terms that could put the country’s finances at risk. In the long run, this debt mountain could become an albatross that would hamper economic growth and lead to social unrest.

Latest data shows that the Nigerian government’s debt burden has reached unprecedented levels under the Bola Tinubu administration, with public debt hitting N97.34 trillion in the fourth quarter of 2023 – a 10.73 percent increase from the previous quarter’s N87.91 trillion. 

The Debt Management Office (DMO) presented the latest data on Nigeria’s public debt in a statement made available to Business a.m., which disclosed that the mounting debt is made up of the domestic and external debt stocks of the federal government, the 36 states and the Federal Capital Territory (FCT).

The N9.43 trillion increase in public debt from the previous quarter was largely attributed to new domestic borrowing by the federal government in order to partially finance the deficit in the 2024 Appropriation Act, as well as disbursements by multilateral and bilateral lenders.

According to the DMO, Nigeria’s total domestic debt amounted to N59.12 trillion, making up 61 percent of the country’s total public debt stock. Meanwhile, external debt stood at N38.22 trillion, accounting for the remaining 39 per cent.

“Consistent with the debt management strategy, Nigeria’s external debt stock was skewed in favour of loans from multilateral (49.77%) and bilateral lenders (14.02%) or a total of 63.79% which are mostly concessional and semi-concessional,” it stated.

The DMO recognises that while it is employing best practices in public debt management, additional efforts are needed to ensure debt sustainability. It pointed to the ongoing efforts by the fiscal authorities to increase revenue as a key factor that will support debt sustainability.

The mounting debt crisis in Nigeria is largely attributed to the government’s heavy reliance on domestic borrowing, which has resulted in spiralling interest payments and mounting questions about the country’s ability to repay its debts. This has put immense pressure on the Nigerian economy, with the government devoting a large portion of its budget to servicing debt rather than investing in critical areas like education, healthcare, and infrastructure.

According to an analysis by The International Center for Investigative Reporting (ICIR), the public debt of Nigeria, if divided by the country’s population of 216.78 million people as estimated by the National Bureau of Statistics (NBS), amounts to N449,022.94 per person. This is a significant increase from September 2023, when each Nigerian owed N405,520 and the quarter before that (June 2023), when each person owed N396,376.19.

Breaking down the country’s external debt, The ICIR found that the federal government owed $37.89 billion, while subnational states owed $4.61 billion, totaling $42.50 billion in external debt. The ICIR converted this figure to Nigerian naira using the Central Bank of Nigeria’s official exchange rate, which was N899.393 to one dollar in December 2023. This amounted to N38.22 trillion in external debt, further highlighting the severity of the debt crisis.

In its October 2023 report on Africa, the International Monetary Fund (IMF) forecasted that Nigeria’s debt-to-GDP ratio would increase by 4.3 percentage points from 38.8 percent in 2023 to 42.1 percent in 2024. This forecast is based on the government’s continued borrowing, as well as slower economic growth and exchange rate depreciation.

Uche Uwaleke,  president of the Association of Capital Market Academics of Nigeria (ACMAN), commented on the marginal increase in public debt, noting that it suggests that the pace of public debt accumulation has slowed, which is evident in both the marginal increase in total public debt as well as the decrease in the external component of public debt.

While Uwaleke noted that the slowdown in public debt accumulation is a positive development, he expressed concern over the fact that the majority of domestic debt is held in FGN bonds, which are not tied to specific projects. This means that the benefits of the debt are not necessarily directed towards the development of the country. Uwaleke stressed the need for greater accountability and transparency in the use of public funds, with a focus on directing debt towards projects that can create jobs and drive economic growth.

According to Uwaleke, “It is important that future domestic borrowings are done using more of infrastructure bonds such as Sukuk and Green Bonds instead of FGN bonds which tend to compound the debt service burden since they are not connected to any self-liquidating project.”

As Nigeria’s voracious appetite for loans grows, so does its reliance on debt to finance its projects. This pattern has continued under the Bola Tinubu administration, signalling that the country’s debt burden will only increase in the near future. While the government continues to justify its borrowing by pointing to its massive infrastructural needs, economists warn that the country is headed for a financial crisis if it does not change course.

The underlying issue is that Nigeria is failing to generate sufficient revenue to fund its expenditures. While the government is taking steps to improve tax collection and diversify its revenue sources, reports show that it is still far behind in closing the gap between its revenues and its spending, leaving it vulnerable to financial shocks. Moreover, the increasing cost of debt servicing is diverting precious resources away from social and economic development, leading to poverty and inequality. The situation is further complicated by a weak and unstable currency, which has made debt servicing even more expensive.

According to some economists, if Nigeria’s current borrowing trajectory continues, the country could be saddled with a public debt of N100 trillion or more by June 2024. In addition to its domestic borrowings, the government is actively courting international lenders to finance its infrastructure projects. While these loans may provide some short-term relief, they come with high interest rates and strict repayment terms that could put the country’s finances at risk. In the long run, this debt mountain could become an albatross that would hamper economic growth and lead to social unrest.

As Nigeria finds itself walking a tightrope of debt, experts agree that there is a way out. They say that with prudent fiscal policies, responsible spending by public officeholders, and citizens who dutifully pay their taxes, the country can eventually move away from being debt-dependent.