Nigeria’s fiscal landscape is facing unprecedented challenges as debt repayments now exceed both recurrent and capital expenditures.

Tilewa Adebajo, CEO of The CFG Advisory, stated these pressing issues during his presentation on “Nigeria’s Fiscal Environment in an Era of Monetary Policy Tightening” at the Finance Correspondents Association of Nigeria (FICAN) bi-monthly forum in Lagos.

According to Adebajo, Nigeria’s debt burden has surged to $130 billion, with 95% of the country’s revenue now allocated to debt servicing.

This development raises concerns about the sustainability of the nation’s fiscal policies and the potential for a debt default akin to those seen in Ghana, Zambia, and Ethiopia.

The National Bureau of Statistics (NBS) reported that Nigeria’s public debt stock soared from N97.34 trillion in December 2023 to N121.67 trillion in March 2024.

Despite allocating N8.7 trillion for capital expenditure in the 2024 budget, only N1.32 trillion is directed towards infrastructure development, highlighting the severe underfunding of critical sectors.

“The current debt levels are unsustainable,” Adebajo warned. “With an additional $10 billion from the 2024 budget deficit, we must commence discussions on restructuring both domestic and external debt to avoid severe economic repercussions.”

Nigeria’s economic indicators paint a grim picture. The country remains in stagflation, grappling with high inflation and stagnant growth.

The introduction of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the removal of fuel subsidies have boosted the Federation Account Allocation Committee (FAAC) revenues by 130% from May to November 2023, yet these measures have not sufficed to stabilize the economy.

Foreign Direct Investment has plummeted to under $1 billion, the lowest in history. Power transmission and distribution infrastructure remains poor, stifling industrial growth and economic productivity.

The macroeconomic situation has deteriorated over the last seven years, with GDP shrinking by an estimated $180-200 billion, now standing at $390 billion.

Adebajo emphasized the dire need for structural reforms. “Nigeria requires a GDP growth rate of 8-10% to sustain its population of 200 million. Current growth at 3% is insufficient, with 135 million Nigerians trapped in poverty and 40% unemployment,” he noted.

“Dwindling reserves and increasing credit default swap premiums have led to a Caa1 junk bond rating status.”

Despite these challenges, Adebajo expressed cautious optimism. “The fundamentals of the Nigerian economy remain sound. However, poor economic leadership has stifled growth. With a new, highly rated economic management team in place, there is hope for significant improvement if reform policies are implemented sincerely and effectively.”

Adebajo proposed several solutions to address the economic crisis:

1. Debt Restructuring: Engage creditors to restructure and extend debt maturities, allowing for manageable repayments and reduced interest rates.
2. Fiscal Discipline: Reduce non-essential government spending, eliminate wasteful subsidies, and enhance public service efficiency.
3. Revenue Expansion: Broaden the tax base, improve collection, and introduce new revenue streams such as value-added tax (VAT) and property taxes.
4. Transparency: Increase transparency and accountability in government spending to build public trust and attract foreign investment.
5. Monetary Policy: Maintain tight monetary policies to combat inflation and attract foreign investment.
6. Competitive Exchange Rate: Stimulate exports and reduce import reliance by maintaining a competitive exchange rate.
7. International Collaboration: Leverage regional and international partnerships for financial assistance, expertise, and market opportunities.
8. Public Engagement: Engage with the public, businesses, and civil society to garner support for economic reforms.

Adebajo concluded with a call for action, stressing the importance of commitment from the new economic management team to drive the necessary reforms and steer Nigeria out of its current economic quagmire.

“The success or failure of our economy hinges on their ability to deliver on reform policies and achieve sustainable GDP growth targets,” he asserted.

Nigeria’s public debt has breached the N101 trillion mark, driven by a substantial influx of loans from the World Bank totaling $4.95 billion over the past twelve months.

This surge in borrowing has raised concerns about the country’s ability to service its growing debt obligations amidst economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices.

As of December 2023, Nigeria’s debt stood at approximately N97 trillion, according to data from the Debt Management Office (DMO).

The recent borrowing spree has propelled this figure to N101 trillion, reflecting a rapid escalation in the country’s indebtedness.

The loans from the World Bank are earmarked for various developmental projects, including critical sectors such as power, women empowerment, education, renewable energy, and economic reforms.

These initiatives are part of Nigeria’s broader strategy to enhance infrastructure, socio-economic development, and institutional reforms aimed at bolstering long-term growth and resilience.

The breakdown of the World Bank funding includes $750 million allocated for power sector financing aimed at improving electricity generation and distribution, which remains a persistent challenge in Nigeria.

Another $500 million is dedicated to women’s empowerment programs, focusing on expanding opportunities and economic inclusion for women across the country.

Also, $700 million has been allocated to support education initiatives, particularly for adolescent girls under the Adolescent Girls Initiative for Learning and Empowerment project.

This funding seeks to enhance access to quality education and empower young girls in Nigeria.

Moreover, the World Bank has committed $750 million to the Distributed Access through Renewable Energy Scale-up project, aimed at increasing electricity access through renewable energy solutions.

This initiative targets over 17.5 million Nigerians who currently lack reliable electricity.

The largest tranche of $1.5 billion is designated for Economic Stabilisation to Enable Transformation Development Policy Financing Programme. This funding is intended to bolster fiscal revenues, expand social safety nets, and support economic diversification efforts to reduce dependency on oil revenues.

Despite these investments aimed at driving economic growth and improving living standards, concerns linger over Nigeria’s ability to effectively manage its escalating debt burden.

The country’s debt servicing costs have risen significantly, diverting resources away from critical sectors such as healthcare, education, and infrastructure development.

Critics argue that while external financing is necessary for development, the government must ensure transparency, accountability, and effective utilization of borrowed funds to avoid the pitfalls of previous debt mismanagement.

There is also a growing call for stringent fiscal discipline and reforms to enhance revenue generation and reduce dependency on borrowing.

President Muhammadu Buhari’s administration has defended the borrowing, asserting that it is crucial for bridging infrastructure gaps, stimulating economic growth, and creating job opportunities.

However, stakeholders emphasize the need for prudent debt management and sustainable economic policies to safeguard Nigeria’s financial stability and long-term prosperity.

The Federal Government’s expenditure on debt financing rose to $854.36 million in May alone, according to data released by the Central Bank of Nigeria (CBN).

This figure marks the highest single-month spending on debt servicing recorded in the past year, raising alarms about the sustainability of the country’s borrowing practices.

The data from the CBN’s International Payments Report revealed a sharp escalation in debt servicing expenditure, with May’s figure representing a significant surge compared to previous months.

The $854.36 million spent in May is nearly four times higher than the amount disbursed for debt servicing in April and reflects a 286.49% increase from the same period in 2023.

The exponential rise in debt financing expenditure comes despite the Nigerian government’s claims of shifting its borrowing focus towards the domestic market.

Such a substantial outlay on debt servicing raises questions about the government’s ability to manage its fiscal responsibilities while maintaining economic stability and growth.

Analysts have voiced concerns over Nigeria’s increasing reliance on external borrowing, which poses risks to the country’s long-term financial health.

Fitch Ratings previously projected Nigeria’s external debt servicing to escalate to $5.2 billion next year, highlighting the urgency for prudent financial management and strategic debt reduction measures.

The Federal Government’s mounting debt burden has prompted calls for transparency and accountability in fiscal policies.

Stakeholders emphasize the need for effective debt management strategies to mitigate the adverse effects of escalating debt levels on the economy.

Despite assurances from government officials regarding plans to raise additional funds from concessional lenders and international financial institutions, including the World Bank, concerns persist over the sustainability of Nigeria’s borrowing trajectory.

The recent announcement by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, regarding an impending $2.25 billion World Bank package underscores the government’s reliance on external financing to meet its financial obligations.

As Nigeria grapples with the economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices, achieving fiscal stability remains paramount.

Efforts to diversify revenue sources, enhance transparency in public expenditure, and implement prudent debt management practices are crucial for safeguarding Nigeria’s financial future and fostering sustainable economic growth.