NIGERIA’S rapid descent into a potentially unsustainable debt trap causes concern. Nigeria’s total debt is set to hit a record N136 trillion, following President Tinubu’s fresh request to the National Assembly to approve a N1.77 trillion ($2.2 billion) external borrowing plan to support the 2024 budget. The parliament approved it on Wednesday.
The country’s debt has ballooned by N50 trillion in 19 months signalling an increasing debt dependence to cover the government’s spending. Nigeria’s total debt stood at N87.3 trillion when Tinubu assumed office in May 2023. By June 2024, the total public debt had hit N134 trillion.
Nigeria’s indebtedness to the International Development Association, a member of the World Bank Group grew by $600 million in three months, rising from $16.5 billion in June 2024 to $17.1 billion as of September. The country is now the third largest debtor to the IDA after Bangladesh and Pakistan.
Increased borrowings have pushed Nigeria’s debt servicing expenses up by 68.8 per cent to N6.04 trillion in the first half of 2024 up from the N3.58 trillion recorded in the 2023 period per Central Bank of Nigeria. It estimated that approximately 30 per cent of Nigeria’s external reserves standing at $38.9 billion are constituted by foreign exchange bank swaps.
With external debt at $42.9 billion and domestic debt rising to N71.2 trillion, Nigeria’s debt-to-GDP ratio rose to a record 55 per cent in June 2024 up from 50 per cent in March, and 42.4 per cent in December 2023 per Debt Management Office. This shows that Nigeria is struggling with the impact of the naira devaluation and increased borrowing at steep interest rates.
The situation is bound to worsen based on the projections in the Medium-Term Expenditure Framework and Fiscal Strategy Paper 2025-2027 sent to the NASS by Tinubu. The paper indicates that debt servicing will account for 32.11 per cent (N15.38 trillion) in 2025 and 33.1 per cent (15.52 trillion) in 2026 compared with 34.44 per cent for capital expenditure (N16.48 trillion) and 31.16 per cent (N15.94 trillion) respectively.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun concluded that Nigeria’s ability to access the international capital market indicates acceptance and support for Tinubu’s economic reforms.
Such self-adulation is premature. The China Exim Bank rejected Nigeria’s $22 billion loan request to fund the Nigerian Railway Modernisation Project’s Kaduna-Kano segment last year due to concerns over the country’s ability to repay.
It is unacceptable that Nigeria’s debt service cost will exceed capital votes in the next three years despite the huge infrastructure deficit that has stultified economic growth. The borrowing spree and rising debt service mean less funding for social services, higher levels of uncertainty, slow growth, and distortions in the economy. The Federal Government’s permanent presence in the domestic money market has sent interest rates soaring with a potential crowding out of private sector players.
While debts are necessary, borrowings must be kept within manageable limits. The government’s fixation on borrowing to meet budgetary expenditure is dangerous. It must adopt other strategies to bridge expenditure gaps including improved efficacy in tax administration, and exploring non-oil revenue sources in mining, blue economy, and agriculture.
Increasing exposure to dollar-denominated loans amid naira volatility and a questionable ability to repay in an invitation to a fiscal crisis.
Nigeria needs a huge cash injection to rebalance the economy and escape a debt trap. An asset-based financing model rather than a debt-based variant is a more sensible option.
It is absurd that the government continues to hold on to assets that are not productive, and it cannot manage properly.
The Nigeria National Petroleum Company Limited’s four refineries should be sold immediately to raise cash and end the huge waste of funds spent on repairs and overhaul. Over $20 billion has been spent in the past 18 years and no fuel has been produced by the plants.
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