Nigeria’s debt servicing payments surged by 69% in the first half of 2024, reaching a monumental N6.04 trillion, compared to N3.58 trillion in the same period in 2023, according to data from the Central Bank of Nigeria.
This sharp rise has further compounded the financial burden on the Federal Government, as an increasing share of its revenue is being siphoned off to service debt. The situation paints a grim picture of the country’s fiscal health, highlighting the government’s deepening reliance on borrowing to meet its financial obligations.
Data from the CBN reveals the alarming extent to which debt servicing has grown relative to revenue generation. In the first half of 2024, debt servicing accounted for 50% of the Federal Government’s total expenditure of N12.17 trillion, a significant increase from the previous year.
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More concerning is the fact that debt servicing expenses represent 162% of the total revenue generated during the same period, which stood at N3.73 trillion. This means that Nigeria is spending far more on repaying debt than it is earning, leaving the government with no choice but to borrow even more to bridge the gap.
Both domestic and foreign debt obligations have ballooned due to rising interest costs, worsened by the devaluation of the naira, which makes repaying foreign-denominated debt more expensive.
In January 2024, for instance, the government spent N755.9 billion on debt servicing, up 37% from N550.3 billion in January 2023, according to the CBN’s data. Although February 2024 saw a slight dip in debt servicing to N505.9 billion (down from N518.7 billion in February 2023), this reprieve was short-lived. By March 2024, debt servicing costs shot up again to N1.01 trillion, a 12.2% increase year-on-year. In May 2024, the debt burden reached a staggering N2.26 trillion, a 332% rise from N523.8 billion in May 2023, likely due to principal repayments and the devaluation of the naira.
Borrowing Spurred by Declining Oil Production
A major factor driving Nigeria’s rising debt is the continuous decline in oil production, the country’s primary source of revenue. Nigeria, Africa’s leading oil producer, has seen a steep drop in its crude oil output due to a range of structural problems, most notably oil theft and vandalism of pipelines. This has significantly hampered the nation’s ability to generate revenue, leaving the government with a precarious fiscal position.
Oil accounts for about 90% of Nigeria’s foreign exchange earnings and over half of its government revenues. With oil production, currently at 40,000 barrels below its August’s 1.35mbpd, consistently falling short of OPEC’s 1.5mbpd quota and official targets, Nigeria’s ability to fund its budget and service debt has been severely constrained.
Oil theft, in particular, has escalated in recent years to alarming levels. Nigeria loses an estimated 400,000 barrels of oil per day to theft, a figure that equates to billions in lost revenue annually. Efforts by security forces have not substantially curbed the rampant theft, alluding to allegations that the oil is being stolen by the people in government.
Against this backdrop, the government has found itself increasingly dependent on borrowing, both domestically and internationally, to fill the revenue gap.
In a speech earlier this year, President Bola Tinubu emphasized the need for comprehensive reforms in the oil sector, acknowledging that unchecked theft and inefficiencies were bleeding the economy dry.
World Bank Warns of A Looming Debt Trap
The rising debt, buoyed by declining oil revenues, has drawn international concern. In a recent report, the World Bank sounded the alarm over the growing debt burden in developing nations like Nigeria. Indermit Gill, the World Bank’s Chief Economist, stated that many countries are on the brink of a financial crisis due to the twin pressures of record-high debt levels and soaring interest rates.
Gill noted that the combination of escalating debt and rising interest rates is creating an unsustainable situation for many developing countries. He warned that Nigeria, with its heavy reliance on oil revenues and increasing debt servicing obligations, is facing a precarious fiscal future unless swift and coordinated actions are taken.
One of the most troubling aspects of Nigeria’s debt servicing obligations is the strain it places on the government’s ability to invest in critical sectors. With 50% of total expenditure in H1 2024 going towards debt repayment, the government has little fiscal space left for infrastructure development, healthcare, education, and social services. These areas are crucial for Nigeria’s long-term economic growth, yet they are being sidelined as more resources are channeled into servicing debt.
The Way Forward
Economists have long advocated that addressing Nigeria’s debt crisis will require a multi-pronged approach, noting that first, the government must take decisive action to combat oil theft and increase production.
Second, economists said fiscal reforms are necessary to improve tax collection and diversify the economy away from its heavy reliance on oil. Additionally, they warned that the government must engage in prudent borrowing, ensuring that loans are used for productive investments that can generate returns and stimulate economic growth.
Simply borrowing to service existing debt will only prolong the crisis and push the country deeper into a debt trap, they said.