Nigeria’s debt-to-GDP ratio seen rising to 25-year high

Nigeria’s public debt has continued to pile with debt-to-GDP ratio almost hitting a 25-year high, raising concerns about the country’s fiscal and public debt sustainability.

Nigeria’s total public debt stock was N3.37 trillion in 1999; it increased to N26.25 trillion in 2022, N97.34 trillion in 2023, and now to N121.67 trillion in the first quarter of 2024.

The debt-to-GDP ratio of Africa’s most populous nation peaked in 1999 at 61.51 percent and hit a low of 7.26 percent in 2006 as the country secured a debt relief fund in June 2005 to cancel 60 percent of its total public debt.

According to a recent report from Analysts Data Services and Resources (ADSR), a research and data intelligence firm, titled “Nigeria’s Debt Is Rising Fast: 25 Years of ‘Democratic’ Debt Accumulation”, Nigeria’s debt-to-GDP ratio at 48.68 percent in Q1 points to the possibility of reaching the pre-debt relief period.

“At 48.68% Debt-GDP ratio in 2024’Q1, the country’s debt situation is looking more like the pre-debt relief years,” analysts at ADSR said.

This follows an earlier projection by the International Monetary Fund (IMF) in its fiscal monitor report, noting that Nigeria’s government debt-to-GDP ratio is expected to rise to 46.6 percent in 2024 from 46.3 percent in 2023.

The debt-to-GDP ratio is a financial metric that compares a country’s total government debt to its gross domestic product (GDP). It is expressed as a percentage and provides an indication of a country’s ability to pay back its debt.

The Ibadan-based research institute identified new borrowing, currency devaluation and securitisation of ways & means by the Central Bank of Nigeria as reasons for the recent increase.

“Recent increase can be attributed to: new borrowing to fund the rising government’s budget deficits; exchange rate devaluation leading to increased valuation of existing and new external debts securitization (recognising) of th N22.7 trillion Ways & Means earlier advanced by the CBN,” the report stated.

“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,” a source conversant with the matter said.

“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 source added.

Data obtained from the Debt Management office revealed that Nigeria’s total debt stock rose by N24.33 trillion in the first quarter of 2023 to N121.67 trillion from N97.34 trillion as of December 2023.

The Abuja-based institution, acknowledging that Nigeria’s borrowing will continue as stipulated in the 2024 Appropriation Act, it “expects improvements in the Government’s Revenue to enhance debt sustainability.”

ADSR however called on the government to fully utilise the assets with which these borrowings were used, some of which are to finance infrastructure projects, social programs, or to mitigate the economic impacts of external shocks.

“Thus, improved focus should be on the quantity and quality of assets created using these debts. This is necessary for Nigeria’s fiscal and public debt sustainability,” the analysts said.