Nigeria’s public debt has reached an unprecedented level of ₦142.3 trillion as of September 30, 2024, marking a 5.97% increase from ₦134.3 trillion recorded in June, according to the Debt Management Office (DMO). The rise is attributed largely to the depreciation of the naira, which has driven up the local currency cost of external debt.
The DMO data reveals that external debt, denominated in U.S. dollars, saw a slight increase of 0.29%, rising from $42.90 billion in June to $43.03 billion by September. However, in naira terms, external debt jumped by 9.22% due to the naira’s devaluation from ₦1,470.19/$ to ₦1,601.03/$ during the period.
Domestic debt followed a similar trend, increasing by 3.10% in naira terms from ₦71.22 trillion to ₦73.43 trillion. This was driven by the Federal Government’s reliance on bonds and promissory notes to meet fiscal obligations. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Public Enterprises, expressed concern over the trend, warning, “If the burden of debt service continues to grow, it could create macroeconomic challenges, potentially leading Nigeria into a debt trap.”
Federal Government’s Borrowing Strategy
Federal Government bonds remain the largest contributor to domestic debt, increasing by 4.47% to ₦54.65 trillion, or 78.95% of the total domestic debt stock. The issuance of Nigeria’s first-ever domestic dollar-denominated bond in 2024 also added ₦1.47 trillion to the debt profile. The $500 million bond, issued at a 9.75% annual coupon rate, witnessed a 180% subscription rate, signaling strong investor confidence.
Promissory notes, used to settle contractor obligations, grew by 5.80% to ₦1.77 trillion. Meanwhile, Nigerian Treasury Bills, the second-largest domestic debt component, fell slightly by 0.66% to ₦11.73 trillion.
External Debt and Currency Depreciation
Nigeria’s external debt remains a significant part of the overall debt profile, standing at $43.03 billion by September 2024. Multilateral loans make up over half of the external debt, with obligations to the World Bank’s International Development Association increasing by $513.06 million. Bilateral loans, including those from China, France, and Germany, saw minor reductions, while commercial loans, such as Eurobonds, remained steady at $15.12 billion.
The depreciation of the naira has intensified the burden of external debt in local currency terms. Analysts warn that exchange rate volatility could worsen the situation unless the government reduces its exposure to foreign borrowing.
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Rising Concerns Over Debt Sustainability
Economic experts have raised alarms over Nigeria’s rising debt levels. Dr. Yusuf cautioned that reliance on borrowing, coupled with volatile exchange rates, could lead to unsustainable debt servicing costs. “We need to watch the rate of growth of our public debt to avoid macroeconomic instability,” he said.
The government, however, has defended its borrowing strategy, emphasizing its commitment to aggressive revenue generation. Minister of Budget and Economic Planning, Abubakar Bagudu, stated during a presentation to the National Assembly, “President Bola Tinubu has steered the economy in the right direction. We are determined to stay the course through innovative financing and reforms.”
Bagudu highlighted a reduction in Nigeria’s fiscal deficit from over 6.1% in 2023 to less than 4% in 2024. He also pointed to a GDP growth rate of over 3% for three consecutive quarters, contrasting it with stagnation in some industrialized nations.
Government Reforms and Future Plans
The Tinubu administration has implemented significant reforms, including the removal of fuel and foreign exchange subsidies, which have enhanced liquidity for states and local governments. Bagudu announced plans to fund critical infrastructure projects such as roads, railways, and housing through initiatives like the Renewed Hope Infrastructure Fund and the National Agriculture Development Fund.
He added, “We shall aggressively raise funding for our creative and high-impact programs. These measures will support inclusive economic growth and strengthen Nigeria’s revenue-to-GDP ratio.”
Despite these efforts, Nigeria’s public debt is expected to rise further. The government recently raised $2.2 billion through a Eurobond auction to address the 2024 budget deficit. With subscription rates exceeding $9 billion, only $2.2 billion was allocated for two bonds with varying tenors and coupon rates.
Economic analysts agree that Nigeria’s reliance on both domestic and external borrowing highlights the urgency of implementing sustainable debt management strategies. The Federal Government’s plans to curb crude oil theft, pass key tax reform bills, and diversify revenue sources could play a pivotal role in addressing the country’s mounting debt challenges.