In a revealing disclosure from the Central Bank of Nigeria (CBN), the nation’s escalating public debt has been shown to have gulped a significant portion of the revenue generated in the first quarter of the year. The latest quarterly statistical bulletin of the apex bank paints a stark picture of the growing fiscal crisis, with debt service costs consuming a staggering 74% of the federal government’s retained revenue.
In the first quarter of 2024, the federal government recorded a retained revenue of N1.76 trillion. However, a significant portion of this revenue, N1.31 trillion, was directed towards servicing existing debts. This allocation of funds to debt servicing, although comprising 74% of the government’s revenue, accounted for only about 29% of total expenditures for the period.
While the retained revenue saw a 33.8% increase from N1.32 trillion in the same period in 2023, government expenditures simultaneously decreased by 12.9%, from N5.28 trillion to N4.59 trillion. This reduction in spending, alongside a 29% decrease in fiscal deficit—from N3.96 trillion to N2.83 trillion—reflects the government’s attempts to tighten its fiscal belt in response to mounting debt pressures.
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The Real Cost: Impact on Development and Public Services
Despite these measures, the high percentage of revenue dedicated to debt servicing remains a critical concern. The reduced fiscal space means less funding is available for essential development projects and public services.
The federal government’s spending priorities further shed light on this issue. In Q1 2024, personnel costs amounted to N1.15 trillion, a 17.1% increase from the previous year. In stark contrast, capital expenditure plummeted by 35.9% to N1.15 trillion from N1.8 trillion in Q1 2023. This significant reduction in capital expenditure suggests a troubling trend of underinvestment in infrastructure and other long-term development projects essential for economic growth.
Capital expenditure is the backbone of sustainable development, driving economic growth and improving public welfare. The reduction in this area signals a potential slowdown in Nigeria’s developmental progress, posing risks to the overall health of the economy.
Debt Service Overruns and Fiscal Sustainability
Nigeria spent N7.8 trillion to service its debt obligations in 2023—a 121% increase compared to N3.52 trillion in 2022. This surge in debt servicing costs is not just a reflection of increased borrowing but also the rising cost of debt, driven by external factors such as fluctuating exchange rates and global economic conditions.
In the first quarter of 2024 alone, Nigeria spent about $1.12 billion on foreign debt service payments, highlighting the growing burden of external debt on the nation’s finances. This figure marks a significant increase from $801.36 million in Q1 2023. Between January and March 2024, Nigeria allocated approximately 70% of its dollar payments to servicing external debts, a substantial rise from 49% in Q1 2023.
Experts Concerns Highlight the Need for Economic Reforms
The international community has not overlooked these developments. The World Bank has expressed profound concern over the escalating debt service costs burdening developing countries.
Indermit Gill, the World Bank’s Chief Economist, and Senior Vice President, noted the potential for a widespread financial crisis if immediate and coordinated actions are not taken. Gill warned that the combination of record-level debt and soaring interest rates could set many developing nations, including Nigeria, on a precarious path toward economic distress and difficult resource allocation decisions.
Analysts have also noted that the high debt service to revenue ratio reflects ongoing fiscal challenges and highlights the urgent need for strategic economic reforms in Nigeria.
Enhancing revenue generation and reducing dependency on borrowed funds have been advocated as crucial steps toward achieving fiscal sustainability. Also, the government has been advised to balance immediate fiscal needs with sustainable economic planning to ensure that debt servicing does not continue to overshadow development goals.
The latest figures from the Debt Management Office (DMO) reveal a significant increase in Nigeria’s total public debt, which stood at N121.67 trillion (approximately $91.46 billion) as of March 31, 2024. This represents a substantial increase from N97.34 trillion (approximately $108.23 billion) at the end of 2023, driven primarily by naira devaluation.
While economists have not condemned borrowing, they note that the challenge lies in managing this debt effectively to foster long-term economic stability and growth. This is against the backdrop of concerns that Nigeria is borrowing for consumption, and a significant portion of the funds borrowed get looted.