Nigeria is on track to witness its debt stock soar to an unprecedented ₦187.79 trillion by 2025, raising concerns over the nation’s fiscal sustainability. A report from CardinalStone, an investment and research firm, has highlighted this projection, underscoring the impact of aggressive government borrowing, a depreciating naira, and rising borrowing costs on the economy.
The report estimates Nigeria's debt stock will reach ₦153.04 trillion by the end of 2024, driven by extensive domestic and external borrowings. Key contributors include the issuance of dollar-denominated domestic bonds worth $900 million, treasury bills, and a recent $2.2 billion Eurobond to support government spending.
This upward trajectory represents a significant increase from the ₦49.85 trillion recorded prior to the 2023 general elections to ₦134.3 trillion by the first half of 2024. Analysts attribute the rapid growth to policy-induced naira depreciation, heightened borrowing, and escalating borrowing costs.
Debt Composition and Rising Burden
According to the Debt Management Office (DMO), as of Q2 2024, Nigeria’s foreign debt stood at ₦63 trillion, making up 47% of the total debt stock, while domestic debt accounted for 53%. The Federal Government borrowed ₦56 trillion externally, with state governments and the Federal Capital Territory accounting for ₦7 trillion. Domestically, the Federal Government’s debt hit ₦66 trillion, while states accrued ₦4 trillion.
Worryingly, Nigeria’s debt-to-GDP ratio has climbed to 58% in Q2 2024, surpassing the DMO’s self-imposed ceiling of 40% and inching closer to the IMF's benchmark of 60% for emerging markets. The country’s weak revenue profile, coupled with volatile foreign exchange rates, heightens the risk of a debt crisis.
Strains on Revenue and Debt Servicing
Debt servicing has become an alarming burden. In the first six months of 2024 alone, Nigeria spent ₦6.0 trillion on debt obligations, consuming half of the Federal Government’s expenditure. This reflects a debt-service-to-revenue ratio of 162%, up from 128% in the same period in 2023.
“The sharp rise in government debt has heightened concerns about its sustainability,” CardinalStone analysts stated in their report titled Pressure to Plateau. The analysts also noted that Nigeria faces significant external debt obligations, with Eurobond maturities averaging $1.33 billion annually over the next decade. Combined with coupon payments, annual debt servicing costs could average $2.24 billion.
What Lies Ahead?
Nigeria’s borrowing spree shows no sign of slowing down. The Federal Government’s proposed 2025 budget indicates plans to spend ₦47 trillion ($28.18 billion), with a projected deficit of ₦13.8 trillion, or 3.87% of the GDP. While this spending aims to address critical infrastructure and social challenges, experts worry about the rising debt burden on future generations.
As the nation grapples with one of its worst cost-of-living crises, fueled by inflation and subsidy removal, analysts warn that unchecked borrowing could plunge Nigeria into a full-blown debt crisis. The government must adopt bold reforms to expand revenue generation, curb leakages, and ensure prudent debt management.
Despite these challenges, CardinalStone analysts highlighted that Nigeria’s external debt ratios, such as external debt service as a percentage of exports, remain within IMF-prescribed thresholds. However, this is little comfort for citizens already burdened by rising taxes, inflation, and dwindling purchasing power.
The path forward demands a delicate balance between meeting development needs and avoiding a debt spiral that could jeopardize Nigeria’s economic stability.
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