Nigeria’s Debt Management Office (DMO) recently revealed a concerning development – the country’s total public debt surged to N87.38 trillion at the end of the second quarter (Q2) of 2023. This figure marks a staggering increase of 75.29 per cent, equivalent to an additional N37.53 trillion, compared to the N49.85 trillion reported just three months earlier, in March 2023. Notably, this debt includes the N22.71 trillion provided by the Central Bank of Nigeria as Ways and Means Advances.
As of June 30, 2023, Nigeria’s total public debt amounted to N87.38 trillion ($113.42 billion). This encompassed the domestic and external debt of the Federal Government of Nigeria, the thirty-six states, and the Federal Capital Territory.
Initially, the DMO had projected that the nation’s public debt might reach N77 trillion, especially after the National Assembly approved former President Muhammadu Buhari’s request to restructure the Central Bank of Nigeria’s Ways and Means Advances. However, the latest data paints a more alarming picture, with the debt surpassing the DMO’s estimate by N10.38 trillion.
38.05 per cent of Nigeria’s debt constitutes external debt, presenting a formidable challenge due to its reliance on foreign currencies. Fluctuations in exchange rates, such as currency depreciation, can lead to increased interest payments and adverse fiscal impacts. Furthermore, the possibility of rising interest rates makes the situation more complex.
One prominent channel through which the Nigerian government funds its budget is the central bank’s Ways and Means facility. This facility serves as a financial lifeline for the government when faced with a budget deficit. However, the risk associated with this approach is the double-digit inflation that currently plagues the nation, posing a severe threat to a fragile economy. Borrowing from the central bank at this rate, in a country where inflation has steadily risen since 2019, could deliver a fatal blow.
The DMO forecasts that Nigeria’s total public debt may reach 37.1 per cent of its gross domestic product (GDP) this year, nearing the government’s self-imposed limit of 40 per cent. Also, the debt office projects that Nigeria’s debt service-to-GDP ratio will surge to 73.5 per cent in 2023, surpassing the government’s set limit of 50 per cent, primarily due to insufficient revenue generation.
Nigeria finds itself at a critical juncture where servicing its debt could soon pose a major economic challenge. Presently, the country has the fourth lowest revenue-GDP ratio globally. To ease Nigeria’s escalating debt burden, the government needs to address its dwindling revenue. Heavy reliance on oil revenue implies that as global oil market uncertainties persist and internal issues such as oil theft persist, revenue will continue to decline.
Simultaneously, government spending is escalating faster than expected, leading to increased borrowing to cover deficits. This growing debt burden means that a higher proportion of revenue will be allocated to servicing the debt. To navigate this precarious situation, the government must take decisive steps to reduce the high cost of governance, eliminate frivolous expenditures, and combat corruption. This administration needs to balance the need for borrowing with fiscal responsibility. The road ahead demands prudent financial management and diversification of revenue sources to ensure a stable and sustainable economic future.