Nigeria faces future crises as WEF’s chief economists point to global fiscal challenges

• Warn on debt and political polarisation

PHILLIP ISAKPA

The ray of hope offered by the easing of inflation and the resilience of global commerce is being dampened by what many economists see as looming fiscal challenges to the world’s economy.

For Nigeria and Nigerians, who are currently experiencing some of the country’s worst economic crises in at least 15 years, they may have to endure for much longer as the fiscal challenges identified by the economists have one of their major roots in the huge debt positions of many of the economies with Nigeria’s debt situation having become alarming in the last 10 years.

In its Chief Economists Outlook for September 2024 published by its Centre for the New Economy and Society, the World Economic Forum (WEF) said a survey  of the chief economists showed that a cautious optimism for recovery fuelled by the easing of inflation and strong global commerce is being tempered by growing concern over elevated debt levels in both advanced and developing economies.

Nigeria is one of the countries with elevated debt levels, a source of major concern, and its debt service burden has become unbearable. In 2023, Nigeria’s debt reached $108.3 billion, representing an increase of 123 percent since 2012, a rate roughly six times its GDP growth rate.

Another set of data shows that stakeholders’ attention had been drawn to a looming debt crisis in Nigeria owing to the fact that within seven years (2017 and 2023), public debt grew by 78 percent from $64.2 billion to $114.4 billion, with most of the new debt owed to private and multilateral creditors. 

“This pace of debt accumulation puts the country on an unsustainable debt path, particularly as the … increased borrowing further worsens the country’s debt burden. A clear example is the spike in debt service payments – principal and interest payments over the next five years (2024 to 2028) are estimated at an average of US$4.2 billion per year, an increase of 68% from US$2.5 billion per year over the last five years (2019 to 2023),” wrote a researcher, a position that mirrors the concern of the WEF chief economists.

The WEF chief economists report, based on a survey, highlights that debt levels and fiscal challenges are placing significant pressure on economies worldwide leaving them vulnerable to future crises.

According to the WEF, a growing concern is a potential “fiscal squeeze”, where rising debt-servicing costs limit governments to invest in essential sectors such as infrastructure, education and healthcare. In developing economies, 39 percent of economists expect an increase in defaults over the next year.

“The global economy may be stabilising, but fiscal challenges continue to pose significant risks,” said Saadia Zahidi, managing director, World Economic Forum, who added that “addressing these challenges requires coordinated efforts from policy-makers and stakeholders to ensure that economic recovery is not undermined by these pressures. Now is the time for pragmatic solutions that can strengthen both fiscal resilience and long-term growth.”

The report found that there continues to be economic uncertainty, with the short term outlook for the global economy beginning to stabilise, but a majority of the chief economists surveyed (54%), expect that the condition of the global economy remains or unchanged over the next year, but four times as many expect conditions to weaken (37%) rather than to strengthen (9%).

According to a majority of the chief economists, public debt burdens represent a threat to macroeconomic stability in both advanced (53%) and developing (64%) economies. Rising debt-servicing costs have led to a fiscal squeeze, and 3.3 billion people now live in countries that spend more on debt interest than on education or health. 

In the future, a majority of chief economists note that current debt dynamics are going to undermine government efforts to boost growth and leave countries poorly prepared for the next economic downturn. 

Moreover, the difficult fiscal position that many countries are in means they are likely to struggle to prepare for numerous structural changes that are under way, including the energy transition, demographic shifts and evolving national security needs.

Growth prospects are mixed, the report noted, stating that in sub-Saharan desert, a moderate or stronger growth trajectory is anticipated, with expectations improving from 55 percent in 2024 to 71 percent in 2025. The Middle East and North Africa region remains uncertain, while Latin America is expected to see modest improvements, with a slight uptick in growth in 2025. South Asia also stands out, with over 70 percent of economists predicting strong or very strong growth in 2024 and 2025, driven by India’s robust performance.

According to the survey report, policy-makers face the twin challenge of driving higher rates of economic growth while also trying to influence its structural character: making growth less damaging to the environment, for example, or less likely to lead to sections of society being “left behind”. 

Around two-thirds of the chief economists agree that policy-makers should prioritise economic growth, with a similar proportion agreeing that progress on other goals must be made, even if this exerts a drag on growth.