Nigeria’s public debt is projected to reach N130 trillion by the end of this year, raising concerns about the nation’s debt-to-GDP ratio.
A recent report from Afrinvest, an investment management firm, titled “Bank Recapitalisation, Catalyst for a $1tn Economy,” highlights this growing fiscal challenge. Released in Abuja, the report notes that Nigeria’s public debt, which includes both external and domestic debt, stood at N121.67 trillion in Q1 2024, up from N97.34 trillion in Q4 2023—an increase of 24.99 percent.
Afrinvest predicts that by the end of 2024, the fiscal deficit, total public debt, debt-to-GDP ratio, and debt-servicing-to-revenue ratio will surpass N13 trillion, N130 trillion, 55 percent, and 60 percent, respectively.
As of early 2024, Nigeria’s public debt comprised N77.5 trillion in domestic debt (63.6 percent) and N44.2 trillion in external debt (36.4 percent). The domestic debt includes N44.8 trillion in Federal Government bonds, N20.3 trillion in Treasury bills, and N12.4 trillion in other domestic obligations. External debt consists of N14.3 trillion from multilateral creditors, N10.9 trillion from bilateral creditors, and N19.0 trillion from commercial creditors.
The report also criticizes the 2024 budget for relying on “overly optimistic” revenue assumptions, which could lead to another year of underperformance. Afrinvest notes that the projected 43.9 percent share of revenue from oil and minerals is unrealistic.
The 2023 budget was marked by consistent underperformance, with actual revenue exceeding the budgeted amount by 7.6 percent, reaching N11.9 trillion. However, total expenditure rose by 31.8 percent to N18.8 trillion, leading to a higher deficit of N46.9 trillion.
The report highlights that the share of Federal Government debt in total public debt stock increased by 44.6 percent year-on-year to N487.3 trillion, representing 89.7 percent of the total debt by year-end.
Afrinvest also warns that the Federal Government’s extensive borrowing plans might negatively impact bank deposits due to higher yields on risk-free securities compared to bank deposit interest rates. They suggest that banks could face heightened risks of asset deterioration due to consumption-focused budgetary patterns.
On a positive note, Afrinvest commended the Central Bank of Nigeria (CBN) for improving oversight of Bureau De Change operators, maintaining a unified forex market policy, and resuming periodic forex sales to approved BDCs at discounted rates. However, the report cautions that persistent short-term pain from this policy is due to insufficient forex reserves.
Afrinvest recommends exploring alternative forex sources, such as bilateral loans, resource-tied loans, debt-for-nature swaps, and asset concessions for immediate relief. They emphasize that revitalizing traditional forex inflow sources like oil production, remittances, and foreign portfolio investment, supported by fiscal policies, is crucial for long-term stability in the forex market.
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