When last month, the Debt Management Office (DMO), announced that Nigeria’s public debt had hit N121.67 trillion, made up of N65.65 trillion ($46.29 billion) total domestic debt and N56.02 trillion ($42.12 billion) external debt, there was general feeling that the country would be crippled by debt.
It triggered an alarm that got many wondering if the debt burden is not hitting an unsustainable level. Part of the worry is the obvious consequences of default in debt servicing obligations.
The fear stems from the fact that the federal government has over the years struggled with low revenue generation, which is also strained by debt service that gulps over 70 per cent some years, leaving just a paltry sum for other government services.
In fact, in the first quarter of 2024, the federal government was said to have generated only N318.5 billion as against a total budget of N2.69 trillion for the period. This is according to a statement attributed to the Office of Accountant General of the Federation, which added that reconciliation was still ongoing.
It is instructive to note that during the same period, the country spent $1.12 billion on debt service according to the DMO. Going by its benchmark exchange rate of N1,330/ $, this translated to N1.49 trillion, meaning that the country must have borrowed to service its debt.
In 2023, DMO informed that Nigeria’s debt service-to-revenue ratio was 73.5 per cent, which exceeded the recommended threshold of 50 per cent due to low revenue. It also warned that the nation’s debt was becoming unsustainable, stressing the need to significantly increase government revenue. It noted that even the debt-to-GDP ratio also exceeded the proposed limit.
DMO states: “Under the alternative scenario, the total public debt-to-GDP ratio at 45.4 per cent in 2023 exceeds Nigeria’s self-imposed debt limit of 40 per cent.”
The agency said the baseline analysis projects the total public debt-to-GDP ratio at 37.1 per cent for 2023, indicating a borrowing space of 2.9 per cent (equivalent to about N14.66 trillion) when compared to the self-imposed limit of 40 per cent.
Analysis by Cowry Asset Management Limited shows that Nigeria’s total debt service payment to the International Monetary Fund (IMF) is $409.4 million, representing 37 per cent of the total external debt service for the first quarter of 2024.
“Eurobond repayments account for another significant portion, 25 per cent of the total external debt cost, equating to $282.6 million. Payments to the Export and Import Bank of China and the International Development Association account for 16 per cent ($180.6 million) and 18 per cent ($196.1 million), respectively,” the analysts noted.
Commenting on the debt crisis, Prof. Godwin Oyedokun of Lead City University, said at 52 per cent, Nigeria’s debt-to-GDP ratio is considered moderate by some standards. He said international organisations like the World Bank suggest benchmarks around 60 per cent for developing countries.
However, he said: “Even if the current ratio is moderate, a rapid increase in debt can become unsustainable in the long run.”
He noted that even a moderate debt-to-GDP ratio can be problematic if a country struggles to generate enough revenue to service its debt (interest payments and repayments).
“If a significant portion of government revenue goes towards servicing debt, it limits resources for other crucial areas like infrastructure, education, and healthcare,” he said, adding that a stagnant or declining economy makes it harder to repay debt.
He concluded that Nigeria’s debt situation requires careful monitoring.
On his part, the Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, said a debt-to-GDP ratio of 50 per cent is beyond the threshold recommended for countries with shaky macroeconomic fundamentals like Nigeria.
“Pre-2015, our debt to GDP ratio was under 30 per cent. But the real ratio should be debt to revenue because it is revenue that is used in debt repayment,” he said.
He noted that the economy has been mismanaged through rudderless policies, intervention frameworks not based on empirical evidence and outright corruption.
“We even have nothing to show for the debts in terms of physical and human infrastructure. Even our GDP is shrinking by about $252 billion. The borrowed money was stolen,” he said.
For the Chief Executive Officer of the Centre for Private Enterprises (CPPE), Dr Muda Yusuf, despite the huge debt, it was almost impossible for the country not to borrow.
He said the current loan expected to be secured by the government is part of the foreign borrowing plan for the 2024 budget deficit to bridge the financing gap.
He, however, noted that the federal government could reduce the need to borrow by raising its oil and gas output.
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