Nigeria’s fiscal woes have deepened as the cost of servicing foreign debt surged by 107.7% in the first eight months of 2024, reaching an alarming N3.8 trillion. This figure dramatically overshot the N1.83 trillion projected for foreign debt servicing in the 2024 budget by N1.97 trillion, according to the 2025-2027 Medium Term Expenditure Framework and Fiscal Strategy (MTEF & FSP) released by the Budget Office.
The report paints a sobering picture of Nigeria’s debt profile. While the government had budgeted N7.41 trillion for total debt servicing—including domestic and foreign debts, sinking funds, and interest payments on securitized ways and means—actual payments reached N5.51 trillion by August. This represents 34.4% of the total budgeted figure.
Domestic debt servicing also slightly exceeded projections. The budget allocated N3.53 trillion for domestic debt, but actual spending rose to N3.6 trillion, a modest increase of N71 billion or 2%.
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The sharp rise in foreign debt servicing costs, however, underscores the pressure on Nigeria’s public finances. Analysts attribute this to a combination of rising global interest rates, naira depreciation, and increased borrowing.
Decline in Oil Revenue, A Major Factor
Nigeria’s oil revenues, traditionally a cornerstone of government finances, have failed to meet expectations. Gross oil and gas revenue for 2024 was projected at N20 trillion, but only N9.83 trillion was realized by August—a performance rate of just 72.1%. After deductions, net oil and gas revenue inflows to the Federation Account stood at N8.5 trillion, falling short of prorated targets by 25.3%.
Persistent challenges in the oil sector, including production constraints, theft, and global price volatility, have undermined the country’s ability to capitalize on its natural resource wealth.
Bright Spots in Non-Oil Revenue Performance
In contrast, non-oil revenues provided a significant buffer. The Federal Government generated N12.74 trillion in retained revenue by August, achieving 73.8% of the N17.25 trillion target for the year. This performance was driven by an exceptional 160.1% achievement in non-oil revenue, which totaled N3.81 trillion.
Corporate Income Tax (CIT) and Value Added Tax (VAT) were standout performers, generating N1.71 trillion and N530.41 billion, respectively. CIT surpassed its target by 74.5%, while VAT exceeded expectations by 55.1%. Customs revenues also showed resilience, reaching N969.89 billion, or 95% of the target, bolstered by increased trade activity and enhanced collection systems.
Independent revenues, amounting to N2.3 trillion, alongside other revenue streams, contributed N4.83 trillion, further supporting the government’s finances.
The report highlights the impact of the naira’s depreciation on Nigeria’s debt servicing obligations, particularly for external debts denominated in foreign currencies. The depreciation has substantially increased the cost of servicing foreign debts, compounding fiscal pressures.
Additionally, increased domestic borrowing, often at higher interest rates, has added to the government’s financial burdens. These factors, coupled with a growing debt-to-GDP ratio—which exceeded 50% for the first time in March 2024—paint a bleak picture of Nigeria’s fiscal sustainability.
Government Claims of Reduced Debt-Servicing Ratio Under Scrutiny
This development sharply contradicts the federal government’s earlier claims that debt-servicing now consumes a reduced portion of national revenue, with officials stating that the debt-service-to-revenue ratio had fallen to 65%.
Adding to the dilemma is the government’s continued reliance on borrowing, which has created a cyclical debt trap. Essentially, the government is borrowing not to finance critical development projects but to service existing debt—a precarious situation that exacerbates Nigeria’s financial vulnerabilities.
The Weight of Debt-servicing on Budget Implementation
Looking ahead, Nigeria’s fiscal challenges are expected to intensify. The proposed 2025 budget is expected to feature a staggering N14 trillion deficit, highlighting the government’s inability to match revenue generation with expenditure needs. This deficit is likely to be financed through further borrowing, perpetuating the vicious cycle of debt accumulation.
Economists have repeatedly warned that such a trajectory risks locking the nation into a debt spiral where resources are diverted primarily to debt servicing at the expense of economic growth and development.
The soaring cost of foreign debt servicing, combined with a growing budget deficit, underscores the urgent need for fiscal reforms. Analysts have called for a strategic approach to debt management, including improving revenue mobilization, curbing wasteful expenditure, and addressing inefficiencies in the oil sector.