Nigeria’s economic landscape is witnessing a worrisome trend, marked by a consistent surge in debt servicing over recent fiscal years, indicative of a notable shift in the nation’s financial priorities.
According to the Medium-Term Expenditure Framework (MTEF) report, projections for the 2024-2026 fiscal years reveal a continual arithmetic escalation in debt servicing, projecting figures to climb from 8.25 trillion in 2024 to 9.3 trillion in 2025 and further to 11.1 trillion in 2026.
This upward trajectory has ignited concerns about the sustainability of Nigeria’s financial future, raising the spectre of a metaphorical mortgage on the prospects of unborn generations. The escalating debt trajectory necessitates a closer examination of the factors driving this concerning trend on a year-on-year basis.
A primary contributor to the escalating debt scenario is the surge in public debt. The Debt Management Office (DMO) reports a notable increase, with Nigeria’s total public debt reaching N87.91 trillion by the end of Q3 2023, a 0.61% rise from the June 2023 figure of N87.38 trillion.
The combined domestic and external debts of the federal government, the 36 states, and the Federal Capital Territory stand at a substantial $114.35 billion at the end of Q3 2023. Government reliance on borrowing to finance budget deficits and critical infrastructure projects, while vital for economic development, poses challenges in ensuring sustainable debt management.
The economic repercussions of the COVID-19 pandemic further exacerbated the challenges, leading to increased borrowing globally to cushion the impact. Nigeria borrowed $800 million from the World Bank to address the socio-economic effects of the pandemic, specifically supporting vulnerable populations through cash transfers.
Inflation emerges as a critical factor influencing the rise in debt servicing costs, eroding the currency’s purchasing power and intensifying the expense of servicing debt. Exchange rate fluctuations, tied to global oil prices, add another layer of complexity, significantly impacting the cost of servicing debt denominated in foreign currencies. An economist said.
A risk analyst emphasises the importance of debt structure, advocating for a balanced portfolio between local and foreign currency debt to mitigate risks associated with currency depreciation.
A report by Heinrich Boll Stiftung attributes Nigeria’s debt crises to a lack of fiscal discipline, pointing out violations of the Fiscal Responsibility Act of 2007. Ambiguities in the Act, lack of strict sanctions, and poor support for oversight agencies contribute to a fiscal structure promoting a lack of accountability, transparency, and corruption.
Government audit reports are not publicly accessible, and the Fiscal Responsibility Act’s requirement to manage borrowed funds in a separate account for proper monitoring is often flouted, with loans added to the overall consolidated funds without clear public reporting on funded capital projects.
Adewale, a financial economist, in his metaphorical analysis, said, ‘People think fire is bad, but not like that because without fire, we cannot cook. It means fire must be controlled to avert unforeseen consequences. Likewise, debt is not bad like the way people painted it, but it must be utilised for high-quality infrastructural projects that will last for a longer period.’
The narrative underscores the need for strategic debt management, fiscal discipline, and transparent reporting to ensure a sustainable financial future for Nigeria.
