Nigeria’s debt-to-GDP ratio has crossed the 50% threshold for the first time, underscoring the country’s escalating fiscal challenges, amidst growing concern about the government’s extravagant spending.
The Debt Management Office (DMO) recently published the latest public debt figures, revealing a public debt portfolio of N121 trillion. This comprises a domestic debt of N65.6 trillion and a foreign debt portfolio of $42.1 billion, which converts to N56 trillion.
Analysis of Debt-to-GDP Ratio
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As of December 2023, Nigeria’s nominal GDP was N229.9 trillion, growing by only 2.74% in real terms. This modest growth has pushed the debt-to-GDP ratio to 52.9%, marking a historic high.
The first quarter of 2024 recorded a nominal GDP of N58.5 trillion, up from N51.2 trillion in the same period in 2023. Subsequent quarters in 2023 saw nominal GDP figures of N52.1 trillion and N60.6 trillion, respectively, with the fourth quarter reaching N65.9 trillion. Consequently, the trailing four quarters GDP total stands at N237.5 trillion, resulting in a debt-to-GDP ratio of 51.2%.
Implications of the Rising Debt Ratio
Nigeria’s debt-to-GDP ratio has traditionally been viewed as relatively low, suggesting room for increased borrowing. Comparatively, as of 2023, Ghana had a debt-to-GDP ratio of 84.9%, South Africa at 72.2%, Kenya at 70.1%, and Egypt at 95.8%.
Despite these higher ratios, Nigeria faces significant challenges in meeting its debt service obligations due to a high debt service-to-revenue ratio. With the debt-to-GDP ratio now exceeding 50%, Nigeria’s capacity to expand its borrowing is increasingly constrained, especially amid ongoing economic difficulties compounded by declining oil revenue.
Over the past nine years, Nigeria’s debt profile has surged due to fiscal challenges, including low crude oil revenues and rising budgetary expenditures. Under the administration of former President Muhammadu Buhari, public debt rose from N12.6 trillion in 2015 to N97.3 trillion by 2023. Between December 2023 and March 2024 alone, public debt has increased by N24.3 trillion.
The DMO attributes this increase to a combination of fresh borrowing and naira devaluation. Specifically, fresh borrowing amounted to N7.71 trillion in the first quarter of 2024. This includes N2.81 trillion from new domestic borrowing as provided in the 2024 Appropriation Act and N4.90 trillion from the securitization of the N7.3 trillion Ways and Means Advances approved by the National Assembly.
According to data from CBN, FG’s borrowing through Nigerian Treasury Bills (NTBs) rose Year-on-Year by 188 percent to N13.235 trillion in the 12 months ending May 2024 from N4.592 trillion in the 12 months ending May 2023.
Global ratings agency Moody’s has projected that Nigeria’s interest spending on debt could consume up to 36% of the federal government’s revenue in 2024. This prediction comes amidst a hawkish monetary policy stance by the Central Bank of Nigeria (CBN), which has pushed interest rates for local borrowing from an average of 12.8% in 2023 to around 19% in the first five months of 2024.
Public Debt: A Persistent Concern
Public debt has been a significant cause of concern for Nigeria over the last nine years. Economists and prominent Nigerians have frequently decried the government’s borrowing practices, criticizing the tendency to fund consumption rather than productive investments. One of the most contentious issues is the perception that borrowed funds are often used to sustain the extravagant lifestyles of public office holders.
The administration of President Bola Tinubu has recently come under fire for its spending priorities amidst rising debt levels. The government’s decision to purchase a presidential yacht, new aircraft, and undertake extensive renovations of offices and residential buildings, costing billions of naira, has sparked widespread controversy. Critics argue that these expenditures are extravagant and unnecessary, particularly when they are funded with borrowed money.
These spending decisions have been perceived as tone-deaf given Nigeria’s severe economic challenges. Public outrage has been fueled by the contrast between the government’s lavish spending on non-essential items and the dire financial straits many Nigerians face. The lavish expenditures are seen as exacerbating the country’s fiscal woes and undermining efforts to stabilize the economy.
“Debt to GDP ratio crossing the 50 percent mark is a disturbing signal for the economy. Getting into the trap of IMF and World Bank is easier than getting out of it. Debt slavery is on the horizon. We must be careful,” former Senator, Shehu Sani said.