Nigeria’s public debt stock has skyrocketed to ₦121.67 trillion ($91.46 billion) as of March 31, 2024, according to the Debt Management Office (DMO). This represents a significant increase of ₦24.33 trillion or 25% from ₦97.34 trillion at the end of December 2023.
According to the DMO, the debt profile encompasses the combined domestic and external debts of the Federal Government of Nigeria (FGN), the 36 state governments, and the Federal Capital Territory (FCT).
The surge in debt raises concerns about Nigeria’s ability to manage its financial obligations in the long term.
Domestic Borrowing Drives Debt Growth
The increase in debt is primarily driven by domestic borrowing. The DMO reported that domestic debt rose to ₦65.65 trillion ($46.29 billion), a significant increase from ₦59.12 trillion at the end of 2023. This growth is attributed to:
Financing the 2024 Budget Deficit: The Nigerian government budgeted for a deficit of ₦9.18 trillion in 2024, and new borrowings are expected to cover a portion of this gap.
Securitization of Central Bank Loans: A portion of the ₦7.3 trillion Ways and Means Advances, a short-term loan from the Central Bank of Nigeria (CBN), was securitized, adding to the domestic debt burden.
FGN Bonds, Treasury Bills Lead Domestic Debt Rise
A breakdown of the domestic debt profile reveals a significant rise in specific instruments:
FGN Bonds: Increased by ₦4.16 trillion to ₦48.42 trillion.
Treasury Bills: Grew by ₦3.92 trillion to ₦10.44 trillion.
FGN Savings Bonds: Increased by ₦4.69 billion to ₦43.88 billion.
Promissory Notes: Grew by ₦240.22 billion to ₦1.57 trillion.
External Debt Falls in Dollar Terms, Rises in Naira
While Nigeria’s total debt has risen in naira terms due to currency depreciation, the dollar value of external debt has actually decreased.
The dollar component of external loans fell to $42.12 billion from $42.49billion.
However,the naira equivalent rose sharply to ₦56.03 trillion (at ₦1,330.26/) from ₦38.22 trillion (at ₦899.39/$) due to a weaker naira.
This means that 53.96% of the total debt are owed to domestic creditors.
Debt Sustainability Concerns Remain
Despite the government’s expectation of improved revenue collection to enhance debt sustainability, analysts warn that the rising debt levels pose a significant challenge.
Nigeria’s debt-to-GDP ratio, a key metric for assessing debt sustainability, is already high. With a growing debt burden and potential revenue shortfalls, the country’s ability to service its debt in the future is a major concern.
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If You Ask Me
The federal government needs to take a multi-pronged approach to address the debt challenge:
Increased Revenue Generation: Implementing effective tax reforms to broaden the tax base and improve collection efficiency is crucial.
Prioritizing Expenditure: Reducing non-essential spending and focusing on critical investments in infrastructure and social programs is essential.
Managing Debt Profile: Exploring options for debt restructuring and extending maturities to ease the repayment burden.
Transparency and Accountability: Enhancing transparency in public finances and ensuring accountability in borrowing and spending practices is critical.
Nigeria’s public debt has reached a critical juncture. While the government seeks to address budget shortfalls, it’s imperative to prioritize long-term debt sustainability. Implementing prudent fiscal policies and exploring alternative revenue streams are crucial to ensure Nigeria’s economic growth remains on a stable path.
