Africa’s most populous nation and largest economy, is grappling with a substantial increase in its public debt, reaching a staggering N121.67 trillion in the first quarter of 2024, according to recent reports from the National Bureau of Statistics (NBS). This surge represents a 24.99 per cent rise from the previous quarter’s debt of N97.34 trillion. The escalation in debt, particularly the foreign component, has raised concerns about its sustainability and economic implications both domestically and internationally.
Since the return to civilian rule in 1999, Nigeria’s public debt has ballooned from N3.37 trillion to N121.67 trillion in 2024. This exponential increase underscores what some analysts term as “25 Years of ‘Democratic’ Debt Accumulation.” Initially, debt levels dropped significantly following debt relief initiatives in the mid-2000s, reducing the debt-GDP ratio to 7.26 per cent by 2006. However, recent figures show a return to pre-relief levels, signaling renewed challenges in managing debt sustainability.
The rise in debt is attributed to several factors, including new borrowings. Nigeria has continued to borrow to finance infrastructure projects, budget deficits, and economic stimuli. But sometimes, the government has cowered to borrowing to pay salaries.
Also, the depreciation of the Naira against major currencies has inflated the value of external debt. Moreover, the Central Bank of Nigeria’s (CBN) interventions under the Ways and Means framework have added to the debt burden.
As of Q1 2024, Nigeria’s public debt is divided into N56.02 trillion (46.05%) external debt and N65.65 trillion (53.95%) domestic debt. This marks a significant shift towards external borrowing compared to a mere 10 per cent in 2010. The increasing reliance on foreign debt reflects both opportunities and risks, including currency exchange fluctuations and external economic conditions that can affect debt repayment obligations.
The development comes with some scary economic implications. The rapid accumulation of debt has raised concerns about its impact on Nigeria’s economy and social stability. Development economist and dean at Adeleke University, Professor Tayo Bello, noted that high debt levels could strain government finances, limiting fiscal space for essential services, infrastructure development, and social programmes. He also stated that with a substantial portion of debt denominated in foreign currencies, fluctuations in exchange rates pose risks to debt servicing costs.
Also speaking, the president of the Independent Shareholders Association of Nigeria (ISAN), Moses Igbrude, said the growing debt levels may erode investor confidence and increase borrowing costs, impacting economic growth and development.
Addressing Nigeria’s debt challenge requires a multi-pronged approach, noted a financial economist at Nnamdi Azikiwe University, Dr. Felix Echekoba. He said there is a need to enhance debt management by implementing robust debt management strategies to monitor, control, and optimise borrowing while ensuring transparency and accountability. He also called on the fiscal and monetary authorities to increase the quality of assets with debt by ensuring that such assets bring returns that can offset their burden.
“Invest in productive assets by ensuring borrowed funds are channeled into productive sectors that generate economic growth, create jobs, and enhance infrastructure,” he stated.
In the same vein, the chief economist at PriceWaterhouseCooper, Dr. Andrew Nevin, decried Nigeria investing in assets that do not bring returns on investment. Nevin said assets such as railways and airports that cannot generate sufficient returns to pay their debt will only create more debt burdens for the nation. He also cited that there is the need for Nigeria to bring alive its $900 billion dead assets to set the country on its proper economic footing.
Speaking further, Bello called on the government to increase non-oil revenue through tax reforms, enhancing efficiency in revenue collection, and promoting economic diversification to reduce dependence on oil revenues. “Strengthen institutional framework by enhancing governance, institutional capacity, and regulatory frameworks to improve public financial management and reduce corruption,” he added.
He stressed that Nigeria’s burgeoning public debt poses significant challenges that require urgent and decisive action. “While debt can be a tool for economic development, its management and utilisation are critical to ensuring sustainable growth and mitigating risks. Moving forward, a balanced approach that promotes fiscal discipline enhances revenue mobilisation, and prioritises investment in productive sectors will be essential in piloting Nigeria towards a path of sustainable economic prosperity while managing its debt burden effectively.
However, an economist at Cashlinks, Samuel Azosiwe, said the Nigerian government is burdened with a bloated civil and public service and, hence is naturally prone to incurring debt burden to meet its recurrent and capital commitments.
Azosiwe stated that the federal, state, and local governments, as well as hundreds of thousands of military and paramilitary operatives, is too much for a country whose major source of income is crude oil. He said certain dynamics will need to be altered to get the country on the right path.
“The public service, to start with, is too expensive for Nigeria. Think about the Upper and Lower houses with all the attachments, then the Executive with all the special assistants. That’s too much,” he said.