Nigeria’s Ticking Debt Clock Stokes ‘Worrisome’ Predictions
Nigeria’s total public debt has been projected to rise to N134.51 trillion in 2024 on expectation that the ongoing local and foreign borrowings would add pressures to the nation credit profile.
In its macroeconomic commentary note, Cordros Capital Limited stated that the surge would push debt to about 51% of the nation’s gross domestic product (GDP) in the current year.
Debt clock has continued to tick higher under the leadership mandate of All Progressive Congress party with worst borrowing pattern seen under ex-president Mohammadu Buhari.
The nation’s fiscal deficits continue to rise year on year amidst excessive focus on oil export to finance government spending. Despite economic diversification tantrum, Nigeria remains oil-dependent nation.
Hydrocarbon sales account for about 90% of foreign receipt, causing total income to rise after the local currency experienced heavy devaluation in the mid of 2023 and further adjustment to pricing method in 2024.
A review of latest data showed that Nigeria’s foreign debt declined by about 16% in the first three months in 2024 as government successfully met obligation owed to investors in the international market.
Debt Management Office (DMO) said in a report that Nigeria’s public debt outstanding increased by 25.0% in the first quarter of 2024 to N121.67 trillion from N97.34 trillion in the fourth quarter of 2023.
Borrowings to finance government spending continue to rise and it is projected to inch higher down the year due to oil revenue slowdown. Federal government is losing income as OPEC reported that Nigeria’s oil output declined to 1.25 million barrels in its latest monthly report.
In its macro note, analysts at Cordros Capital Limited highlighted that the increase primarily reflects new borrowings to finance rising government expenditures against the persistent revenue underperformance, and the impact of the naira depreciation on foreign debt.
A review of the data provided by DMO showed that total domestic debt stock rose by 11.0% in the first three months in the year to N65.65 trillion from N59.12 trillion in the fourth quarter of 2023.
Cordros Capital Limited observed that the total external debt decreased by 15.5% to USD91.46 billion in the period from USD108.23 billion in Q4-2023 due to the FG’s settlement of matured external obligations.
However, in naira terms, external debt stock grew by 46.57% on quarterly basis to N56.02 trillion versus N38.22 trillion in Q4-2023 due to exchange rate fluctuation.
“We anticipate a significant increase in Nigeria’s total debt due to increased borrowings by the FG to fund the 2024 budget deficit, and the impact of the depreciation of the naira on foreign debt. We project total public debt to settle at N134.51 trillion or 50.9% of GDP in 2024”, Cordros Capital Limited forecasted.
Cowry Asset Limited explained that the underlying driver of escalating debt levels stems from Nigeria’s constrained revenue base, prompting concerns regarding the government’s ability to fulfill its debt obligations.
Analysts pointed at the high cost associated with servicing this debt, which is further hinged on the Naira devaluation, has resulted in a significant allocation of government revenues towards debt payments, intensifying the fiscal challenge.
“… These challenges are further compounded by the foreign exchange harmonisation and revaluation efforts by the Central Bank of Nigeria, heightening the cost of debt servicing.
“Given that Nigeria’s debt is denominated in both domestic and foreign currencies, the nation is vulnerable to external shocks, including fluctuations in interest rates and exchange rates.
“These dynamics underscore the critical imperative for a sustainable debt management strategy and the urgency of diversifying revenue sources to bolster fiscal resilience and mitigate risks associated with the expanding debt burden”, Cowry Asset stated.
Analysts added that despite ongoing reforms, such as the removal of fuel subsidies and aggressive revenue generation efforts, the gradual uptick in the total debt stock, especially in external debt, underscores the persistent reliance on borrowing to meet budgetary shortfalls and financial obligations.
Nigeria has obtained $4.95 billion in loans from the World Bank in 12 month, in spite of growing concerns regarding the rising expenses of servicing its external debt.
Total debt is expected to tick further as the administration expects the international financial institution and the African Development Bank to approve additional loans totaling $4.4 billion for the upcoming year.
AfDB has six projects in Nigeria already approved, including $750 million for power sector financing, $500 million for women’s empowerment, $700 million for the girl-child education, $750 million for renewable energy solutions, $750 million for resource mobilisation reforms, and $1.5 billion for economic stabilization reforms. These projects have contributed to the country’s increasing debt levels. OMO Bill Yield Slumps, CBN Ignores Investors Bids Last Minute
