Nigeria’s debt soars to N134.3trn, analysts warn of rising fiscal risks

Nigeria’s public debt stock surged to N134.3 trillion ($91.3 billion) by the end of the second quarter of 2024, marking a 10.35% increase from the N121.7 trillion ($91.5 billion) recorded in the first quarter, according to data from the Debt Management Office (DMO).

This sharp rise, primarily driven by the devaluation of the naira, reflects the broader economic challenges Nigeria faces, particularly regarding exchange rate volatility.

A Ministry of Finance document underscores the critical role of currency devaluation in inflating the debt figures.

“In Q2 2024, the debt stock grew in naira terms to N134.3 trillion ($91.3 billion) from N121.7 trillion ($91.5 billion) in Q1 2024, driven mainly by exchange rate devaluation,” the document stated.

However, the relatively stable dollar amount highlights the currency movements’ disproportionate impact on the debt’s naira valuation.

Breaking down the debt structure, Nigeria’s domestic and external borrowing strategies show a continued preference for domestic debt, which accounted for 53% of the total debt at N71.2 trillion ($48.4 billion), while external debt comprised 47%, or N63.1 trillion ($42.9 billion).

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Domestic borrowing includes various financial instruments such as Nigerian Treasury Bills, Savings Bonds, Sukuk, Promissory Notes, and Green Bonds, reflecting the government’s efforts to diversify its funding sources.

On the external side, Nigeria’s reliance on multilateral loans remains significant, with loans from institutions like the World Bank and African Development Bank (AfDB) representing 50.4% of the external debt.

Bilateral loans accounted for 13.7%, while commercial loans made up 35.9%, demonstrating a balance between concessional and market-based borrowing to navigate the global financial markets.

Experts have raised concerns over the country’s rising debt-to-GDP ratio, which has exceeded 50%. This trend, coupled with a sharp 69% increase in debt servicing payments in the first half of 2024, indicates growing fiscal risks.

Debt servicing reached N6.04 trillion in H1 2024, up from N3.58 trillion in the same period in 2023.

The surge in debt repayments, largely driven by the devaluation of the naira and its impact on foreign debt obligations, now consumes a significant portion of government resources.

The Central Bank of Nigeria (CBN) reports that debt servicing accounted for 50% of total expenditure (N12.17 trillion) and a staggering 162% of the N3.73 trillion total revenue generated during the period.

Economic analysts have warned that this trend could undermine Nigeria’s long-term fiscal sustainability.

“The rise in debt service payments and the growing debt-to-GDP ratio are alarming. If not managed properly, this could severely limit the government’s ability to invest in critical infrastructure and social services,” said Dr. Olumide Adetola, an economic analyst.

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Tobias Adrian, the IMF’s Financial Counsellor and Director of Monetary and Capital Markets, also commented on the broader implications of Nigeria’s debt during a press conference at the IMF/World Bank annual meetings in Washington D.C.

“Frontier markets, including Nigeria, have remained active in the debt market this year. While access to financing has become more expensive, overall issuance levels have been encouraging,” Adrian said, acknowledging the increased costs of borrowing since 2021.

Despite these challenges, Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, remains focused on securing affordable financing to support ongoing economic reforms.

In a statement, the Ministry of Finance emphasized the importance of international support for Nigeria’s structural adjustments.

“Edun will be leading Nigeria’s delegation in discussions on strengthening economic resilience and making the case for increased international financial backing,” the statement read.

Analysts like Adetola caution that while securing external financing is crucial, the government must also adopt broader reforms to ensure fiscal sustainability.

“The naira devaluation has inflated the debt in naira terms, but without addressing structural inefficiencies in public spending and improving revenue generation, Nigeria risks falling into a deeper debt trap,” Adetola warned.

As Nigeria continues to navigate its fiscal challenges, the government’s ability to balance borrowing with effective reforms will be critical in determining its economic future.