Nigeria has solidified its position as the third-largest debtor to the World Bank’s International Development Association (IDA), with its exposure rising to $17.1 billion as of September 30, 2024.
This marks an increase of $600 million from the $16.5 billion recorded three months earlier in June 2024.
The World Bank’s latest financial statements for the fiscal year up to September 2024 reveal a significant year-on-year debt growth of 14.4%, up from $14.3 billion in June 2023. The fiscal year, which spanned July 2023 to June 2024, saw Nigeria receive an additional $2.2 billion in loans, further cementing its reliance on concessional financing.
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For the first time, Nigeria ascended to the top three IDA borrowers in June 2024, surpassing its previous rank of fourth in 2023. Under President Bola Tinubu’s administration, the country has received $2.8 billion in loans from the IDA, maintaining its status as the third-largest debtor behind Bangladesh and Pakistan.
Bangladesh holds the top spot with an exposure of $21 billion, followed by Pakistan at $18.5 billion. India, which was displaced by Nigeria, stands in fourth place with a debt of $15.9 billion, while Ethiopia ranks fifth with $13.1 billion. Other significant borrowers include Kenya ($12.4 billion), Tanzania ($12.2 billion), and Vietnam ($12.2 billion). At the lower end, Ghana and Uganda owe $7 billion and $5 billion, respectively.
Together, these ten countries account for 63% of the IDA’s total exposure, reflecting their heavy dependence on concessional financing.
Nigeria’s rising debt to the IDA underscores its continued reliance on external borrowing to manage its fiscal challenges and implement development programs. The concessional loans, characterized by low interest rates and extended repayment terms, are critical to the country’s funding strategy.
However, the growing debt burden comes at a cost. The Federal Government spent $3.58 billion servicing its foreign debt in the first nine months of 2024, a 39.77% increase from the $2.56 billion spent during the same period in 2023. This surge in debt servicing payments highlights the mounting pressure on Nigeria’s fiscal balance amid persistent economic challenges.
IDA’s Single Borrower Limit
The IDA has set its Single Borrower Limit (SBL) at $47.5 billion for FY2025, representing 25% of its $190.3 billion equity as of June 30, 2024. While Nigeria’s debt remains significant, it is still within this threshold, which the World Bank considers non-restrictive for now.
The World Bank’s financial statement emphasized the importance of monitoring repayment profiles, disbursement trends, and projected new loans to maintain a balanced exposure for the IDA.
Debt Growth Without Development Gains
This rising debt is stirring deep concerns among economists and policymakers, who question whether these loans are being effectively utilized to stimulate economic and developmental growth.
Critics argue that the funds, which are expected to be channeled toward critical infrastructure and poverty alleviation projects, have failed to yield measurable progress in key sectors.
With 56% of Nigerians living below the poverty line, the country faces immense development challenges that require significant investment. However, the reality on the ground tells a different story. Declining oil revenues, which traditionally account for a significant portion of the nation’s income, have left a gaping hole in public finances. Unemployment remains high, public infrastructure is in a deplorable state, and access to quality healthcare and education remains inadequate.
Analysts have repeatedly raised concerns that Nigeria is primarily borrowing for consumption rather than investment. They noted that funds are often used to cover recurrent expenditures such as public salaries, subsidies, and debt servicing, leaving little room for transformative projects that could spur long-term economic growth.
Fiscal Challenges Amid Tinubu’s Economic Reforms
Under President Tinubu, Nigeria has sought to balance the inherited debt obligations with necessary reforms to stabilize the economy. However, the pressure from rising debt servicing costs threatens to derail fiscal consolidation plans.
Economists have warned that without stringent measures to improve revenue generation, curb waste, and ensure effective utilization of borrowed funds, the benefits of these loans may not translate into meaningful development outcomes.
The fundamental issue, they argue, lies in the absence of a clear strategy to ensure that borrowed funds are deployed toward productive sectors. Instead of fueling economic growth, the loans are used to plug budget deficits and finance consumption-driven expenses.