Nigeria’s public debt has reached alarming levels, soaring to a staggering N134.3 trillion ($91.3 billion) by the end of the second quarter of 2024. This represents a significant 10.35% increase from the N121.7 trillion ($91.5 billion) recorded in the first quarter, according to the Debt Management Office (DMO).
The primary driver of this surge is the persistent devaluation of the naira, which has eroded the value of the country’s debt. As the naira weakens, the cost of servicing foreign debt increases, placing additional strain on the government’s finances.
“In Q2 2024, the debt stock grew in naira terms to N134.3 trillion ($91.3 billion) from N121.7 trillion ($91.5 billion) in Q1 2024, driven mainly by exchange rate devaluation. The dollar amount of debt was roughly the same,” the document stated.
Domestic Debt Dominates, External Borrowing Rises
Nigeria’s debt portfolio is characterized by a significant reliance on domestic borrowing. Domestic debt accounted for a substantial 53% of the total debt, amounting to N71.2 trillion ($48.4 billion), while external debt made up the remaining 47%, equivalent to N63.1 trillion ($42.9 billion).
FGN Bonds emerged as the dominant instrument within the domestic debt portfolio, constituting 78% of the total. This highlights the government’s preference for local bond markets to finance its fiscal operations. Other domestic instruments include Nigerian Treasury Bills, Savings Bonds, Sukuk, Promissory Notes, and Green Bonds, offering diverse avenues for public financing.
On the external front, multilateral loans emerged as the primary source of external debt, accounting for 50.4% of the total. This preference for loans from international financial institutions like the World Bank and the African Development Bank (AfDB) underscores Nigeria’s strategic approach to securing concessional financing.
Bilateral loans and commercial loans followed, contributing 13.7% and 35.9%, respectively, to the external debt portfolio. This balanced approach between concessional and market-based borrowing enables Nigeria to manage its debt obligations while navigating global financial markets.
Rising Debt-to-GDP Ratio Raises Concerns
The increasing trend in Nigeria’s debt-to-GDP ratio, which has surpassed the 50% mark, raises concerns about the country’s fiscal sustainability. As the debt burden continues to grow, it becomes imperative for the government to implement prudent fiscal policies and prioritize debt repayment to mitigate potential risks.
If You Ask Me
The Nigerian government faces a delicate balancing act in managing its debt portfolio. While domestic borrowing offers flexibility and can stimulate the local economy, it also carries risks, such as crowding out private sector investment. External borrowing, particularly from multilateral lenders, can provide concessional terms and support development projects, but it exposes the country to exchange rate fluctuations and potential repayment challenges.
To address the growing debt burden, Nigeria must implement comprehensive fiscal reforms and prioritize sustainable economic growth. This includes diversifying the economy, improving revenue mobilization, and reducing wasteful expenditure. Additionally, the government must strengthen its debt management practices to ensure transparency, accountability, and prudent borrowing.
The ongoing devaluation of the naira poses a significant threat to Nigeria’s debt sustainability. As the currency weakens, the local currency value of foreign debt increases, exacerbating the debt burden. To mitigate this risk, the government must take decisive steps to stabilize the naira and implement policies that promote economic growth and attract foreign investment.
The future of Nigeria’s debt crisis hinges on the government’s ability to implement sound economic policies and make tough decisions. By taking decisive action to address the underlying causes of the debt problem, Nigeria can hope to restore fiscal stability and secure a sustainable economic future.
