Nigeria’s debt service-to-revenue ratio to hit 110.4% in 2024

Afreximbank, Africa’s leading export-import bank, has said Nigeria’s debt service to revenue ratio may hit 110.4 percent this year, raising concerns about the financial health of the country.

“The debt service to revenue ratio has increased significantly, from 33.8% in 2017 to a projected 110.4% in 2024, signalling potential difficulties in meeting debt servicing obligations relative to revenue generation,” Afreximbank said in its latest country report.

BusinessDay had reported in February this year that debt servicing bill in Africa’s biggest economy gulped 66.9 percent (N5.79 trillion) of total revenue of N8.65 trillion in the first nine months, lower than 99.3 percent (N4.23 trillion) in the same period of 2022.

It however said that the figure may drop to 62.6 percent in 2025 on continuous structural reforms and fiscal management by the government.

The financial institutions said Nigeria is currently benefiting from a relatively low FX debt-to-GDP ratio, surging from 16.7 percent in 2017 to a projected 40.3 percent in 2024 while debt-to-export ratio is projected to decline to 137.1 percent.

“The debt-to-export ratio has also shown a substantial increase, reaching 235.7% in 2020 before gradually declining. It is projected to decrease to 137.1% in 2025, suggesting a heavy reliance on external borrowing compared to export earnings,” the Cairo-based bank said.

According to the report, the increase indicates a significant debt growth relative to the country’s economic size, adding that Nigeria’s risk of debt distress is considered moderate.

It also added that Nigeria’s debt service to export ratio has varied over the years, reaching 18.4 percent in 2023, which indicates the proportion of exports needed to service debt obligations.

Despite facing challenges stemming from the government’s various reforms, Nigeria’s ability to sustain its debt looks promising, the report said.

“The country needs to find diverse funding sources and increase its revenue to minimise risks associated with rising debt levels and debt service obligations compared to GDP, exports, and revenue,” the Cairo-based financial institution said.

It noted that Nigeria’s debt sustainability depends on its capacity to implement sensible fiscal management practices, find diverse funding sources, and improve revenue generation.

“Enhancing tax collection systems, curbing oil theft, cutting non-productive government spending, and supporting private sector-led growth can ease debt sustainability pressures and promote long-term economic stability,” Afreximbank said.

The report highlighted securing debt management frameworks, improving transparency and accountability in debt procurement and use, and establishing sustainable debt repayment plans as ways to protect Nigeria’s fiscal health and reducing risks linked with mounting debt levels and debt service obligations.