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.
The alarming surge in Nigeria’s debt trajectory has sparked anxieties regarding the nation’s financial viability, casting a looming metaphorical mortgage on the aspirations of future generations. This escalating fiscal challenge underscores the imperative for a meticulous investigation into the underlying factors propelling this disconcerting trend on an annual basis, demanding a comprehensive understanding to formulate effective strategies for sustainable economic management and mitigate potential threats to the nation’s financial stability.
This escalating fiscal challenge underscores the imperative for a meticulous investigation into the underlying factors…
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.
Highlighting the critical role of debt structure, a risk analyst underscores the need for a well-balanced portfolio comprising both local and foreign currency debt. This strategic approach serves as a safeguard against risks linked to currency depreciation. By diversifying the debt composition, Nigeria can better navigate economic fluctuations, ensuring stability in debt servicing costs and minimising vulnerability to adverse currency movements in the ever-changing global financial landscape.
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.
Lack of public access to government audit reports and frequent violations of the Fiscal Responsibility Act compound Nigeria’s financial challenges. Borrowed funds, meant for specific projects, are often amalgamated into consolidated funds without transparent public reporting. This non-compliance undermines accountability, transparency, and effective monitoring, posing a significant obstacle to the nation’s fiscal responsibility and the judicious use of borrowed resources.
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.
