The International Monetary Fund (IMF) has projected a slight uptick in Nigeria’s government debt as a percentage of its Gross Domestic Product (GDP) for the year 2024.
According to the report, Nigeria’s government debt-to-GDP ratio is expected to rise to 46.6 percent in 2024 from 46.3 percent in 2023.
The IMF disclosed this in its fiscal monitor report released on Wednesday at its ongoing spring meetings with the World Bank in Washington D.C.
This marginal increase suggests that Nigeria’s government has incurred slightly more debt relative to its economic output compared to the previous year. The rise in the debt-to-GDP ratio could be attributed to various factors such as increased borrowing to finance infrastructure projects, social programs, or to mitigate the economic impacts of external shocks.
While a higher debt-to-GDP ratio can raise concerns about fiscal sustainability and debt servicing capacity, it’s essential to assess this increase in the broader context of Nigeria’s economic performance and fiscal policies. The IMF’s report may prompt policymakers to carefully evaluate debt management strategies, ensuring that borrowing remains sustainable and contributes to long-term economic growth and development.
Nigeria’s government debt-to-GDP ratio remains within a manageable range compared to many other countries, but continuous monitoring and prudent fiscal management will be crucial to maintaining financial stability and promoting sustainable economic growth.
In the report, the IMF sheds light on the fiscal challenges facing low-income developing countries, highlighting both improvements and persistent concerns in their fiscal balances and debt dynamics.
According to the IMF, fiscal balances have shown improvement only in sub-Saharan Africa, with a notable increase of 1.2 percentage points of GDP attributed to both lower spending and higher revenues. However, primary deficits are projected to decline further in low-income developing countries overall, with an average decrease to 1.5 percent of GDP in 2024 and a gradual reduction to 1 percent by 2029, indicating progress compared to their levels in 2019.
The report underscores that revenues are expected to improve in many economies within this group, driven by measures such as new tax policies and reduced exemptions to the value-added tax, as exemplified in Bangladesh. However, expenditures are projected to rise modestly, posing challenges to fiscal management.
While average public-debt-to-GDP ratios have been contained at around 50 percent since 2020, certain factors have contributed to exceptions, such as the uptick to 53 percent of GDP in 2023 driven by exchange rate depreciation in Nigeria. High debt-service burdens remain a significant concern, consuming around 13 percent of total spending and almost 25 percent of tax revenues on average in 2023, double the level seen 15 years ago. In Nigeria specifically, the debt-service burden amounts to around 56 percent of tax revenues.
The IMF report warns that such high debt-servicing costs limit spending on essential services and critical investments necessary to improve economic resilience and reduce poverty. Moreover, borrowing on commercial terms is increasing among these countries, heightening their exposure to interest rate and foreign exchange risks.
Looking ahead, the report highlights significant risks associated with debt refinancing, as substantial amounts of external debt, approximately $60 billion, are due for repayment in 2024–25, three times the average in the 2010s. While some low-income developing countries, including Benin, Côte d’Ivoire, and Kenya, have returned to international markets to refinance maturing debt, governments are urged to carefully consider the trade-offs between current financing and future fiscal sustainability.
The IMF underscores the importance of prudent fiscal management and debt sustainability measures to navigate the complex challenges posed by high debt burdens and external financing risks, ensuring long-term economic stability and sustainable development in low-income developing countries.
