Nigeria’s debt stock will reach N187.79 trillion this year as the country grapples with a rising borrowing cost, naira depreciation and aggressive government borrowing, it has been projected.
This is according to a recent report by Cardinalstone, an investment and research firm which revealed that the country’s debt will reach N153.04 trillion by year-end 2024.
This accumulation in debt profile, according to the report, is fueled by the issuance of a dollar-denominated domestic bond ($900.00 billion), regular borrowings through Nigeria Treasury Bills (NTBs) and bonds, and the country’s recent return to the Eurobond market to raise $2.20 billion.
“We estimate government debt to reach N187.79 trillion in 2025. The sharp rise in government debt has heightened concerns about its sustainability,” the analysts said in their report titled ‘Pressure to Plateau’.
Nigeria’s debt has surged significantly in recent quarters, climbing from N49.85 trillion before the 2023 general elections to N134.30 trillion by the end of the first half of 2024.
This sharp increase primarily reflects the impact of policy-induced Naira depreciation, aggressive government borrowing, and rising borrowing costs.
According to data sourced from the Debt Management Office (DMO), Africa’s fourth largest economy has as much as N63 trillion ($43 billion) as its foreign debt, accounting for 47 percent of the total debt stock as at Q2 2024.
The Federal Government of Nigeria (FGN) took the lion share, borrowing approximately N56 trillion while the 36 states plus the Federal Capital Territory (FCT) had N7 trillion as their external debt.
A more cursory look at the data showed that the Nigerian government relied more on domestic borrowings as it accounted for 53 per cent of total debt profile with the FGN taking N66 trillion and state governments having N4 trillion as their debts.
Nigeria’s debt stock has grown from 53 per cent recorded in Q1 to 58 per cent in Q2, defying the DMO’s self-imposed public debt ceiling of 40 per cent, as outlined in the agency’s Medium-Term Debt Management Strategy.
Although the current public debt-to-GDP ratio is slightly below the IMF’s 60 percent benchmark for emerging market countries, the nation’s weak revenue profile and FX volatility risks could further escalate debt levels, straining the already strained economy.
With Nigeria’s debt stock rising, debt-to-service ratio will remain elevated.
This means that a large percentage of the government’s revenue which should be used for capital expenditures will be portioned to pay off the debts.
For instance, debt service costs surged by 69 per cent year-on-year to N6.0 trillion in the first six months of 2024, consuming about half (50 per cent) of FG’s aggregate expenditure, highlighting the significant burden of debt obligations on the government’s finances.
The debt service cost implies a debt-service-to-revenue ratio of 162 per cent, up from the 128 per cent reported in H1 ’23, indicating the considerable portion of government revenue set aside to meet debt commitments.
Analysts have expressed concerns over the rising debt levels, warning that it could trigger a debt crisis for a country that’s reeling from its worst cost of living crisis in a generation.
The Cardinalstone report stated that Nigeria faces some notable debt obligations. Aside from 2026, the country has Eurobond maturities averaging $1.33 billion annually over the next decade. Including coupon payments, total annual debt servicing costs could average $2.24 billion.
“These maturities suggest that debt repayment and servicing costs are likely to remain high in the near to medium term, but we reiterate that the country’s external debt linked ratios (such as external debt service as percentage of exports, external debt to exports, and debt service to exports) are still favourably within IMF’s prescribed thresholds,” the analysts said.
