Concerns concerning Nigeria’s debt-to-gross domestic product ratio have been raised, as the country’s public debt stock is expected to reach N130 trillion this year. This was disclosed in a paper published recently in Abuja by the investment management firm Afrinvest, headlined “Bank Recapitalization, Catalyst for a $1tn Economy.”
According to the National Bureau of Statistics, Nigeria’s public debt stock—which includes both domestic and foreign debt—rose from N97.34 trillion in the fourth quarter of 2023 to N121.67 trillion in the first quarter of 2024, representing a growth rate of 24.99 percent on a quarterly basis.
By the end of 2024, Afrinvest projected that the fiscal deficit, total public debt stock, debt-to-GDP, and debt-servicing-to-revenue rates would surpass N13.0 trillion, N130 trillion, 55%, and 60%, respectively.
Nigeria’s governmental debt stock was N121.7tn as of Q1 2024, with N77.5tn (63.6%) of the amount coming from domestic debt and N44.2tn (36.4%) from overseas debt.
The total amount of domestic debt is N12.4 trillion, N20.3 trillion in Treasury bills, and N44.8 trillion in bonds issued by the federal government. N14.3 trillion from multilateral creditors, N10.9 trillion from bilateral creditors, and N19.0 trillion from commercial creditors make up the total amount of external debt.
The 2024 budget is based on “overly optimistic” revenue forecasts, according to the investment management firm’s study, which could result in a budget that is historically disappointing.
“The expectation of a 43.9 per cent share of the projected revenue from oil and other minerals is unrealistic,” the report stated.
Afrinvest’s assessment of the 2023 actual budget revealed a sustained under-performance, with actual revenue outpacing the budgeted amount by 7.6 per cent to N11.9 trillion. However, aggregate expenditure rose by 31.8 per cent to N18.8tn, leading to a higher deficit of N46.9tn.
“The share of Federal Government’s debt in total public debt stock rose 44.6 per cent year-on-year to N487.3 trillion, accounting for 89.7 per cent of total public debt stock by year-end,” the report noted.
Afrinvest further stated that “the Federal Government’s expansive borrowing plan could rub off negatively on banks’ deposits, given the attractive yields on risk-free papers as compared to interest on banks’ deposit.”
It added, “We believe banks would continue to battle heightened risks of asset deterioration, partly induced by consumption-tilted budgetary patterns.”
Meanwhile, Afrinvest commended the Central Bank of Nigeria’s move to streamline the number of Bureau De Change operators, sustained the policy on the collapse of the previous multiple forex segments, and resumed periodic sales of forex to approved BDCs at a discounted rate.
“The CBN supervision of BDC operations has been enhanced, and compliance has improved due to higher stakes of the operators,” the report noted.
However, Afrinvest warned that “what should have been a short-term pain from this policy action has become endemic due to the weak forex reserve’s inability to adequately meet market demand.”
The report recommended exploring alternative sources of forex, such as bilateral loans, natural resource-tied loans, debt-for-nature swaps, and asset concessions, to provide extended short-term reliefs.
“For the forex market to experience sustainable tranquility, traditional forex inflow sources—oil production, remittances, and foreign portfolio investment—must be revitalised by supportive fiscal policies. Standalone, these policies will only deliver short-term relief on the forex debacle,” the report stated.
