The Debt Management Office (DMO) has disclosed a significant escalation in the country’s public debt, which soared by 10.7% to N97.34 trillion in the fourth quarter of 2023, from N87.91 trillion recorded in the previous quarter.
This surge in debt levels was primarily attributed to new domestic borrowing initiatives undertaken by the Federal Government, aimed at partially financing the deficit outlined in the 2024 Appropriation Act, alongside disbursements from both multilateral and bilateral lenders.
The DMO’s revelation came through a press statement released on Friday, which meticulously outlined the composition and reasons behind the uptick in the national debt figure.
Several factors contribute to the rising debt in Nigeria:
1. Budget Deficits: Nigeria has been running persistent budget deficits, where government spending exceeds revenue. To finance these deficits, the government often resorts to borrowing, which increases the country's debt burden over time.
2. Infrastructure Investment: Nigeria requires significant investment in infrastructure such as roads, bridges, power plants, and hospitals to support economic growth and development. The government often borrows funds to finance these projects, contributing to the increase in debt.
3. Economic Challenges: Nigeria has faced economic challenges such as fluctuating oil prices, which significantly impact government revenue since oil exports are a major source of income. Economic downturns can lead to increased borrowing to offset revenue shortfalls.
4. Debt Servicing Costs: Servicing existing debt requires a portion of the government's budget. As debt levels rise, so do debt servicing costs, which can further strain government finances and lead to additional borrowing to cover these costs.
5. Currency Depreciation: Depreciation of the Nigerian currency (Naira) can increase the cost of servicing foreign-denominated debt, especially if revenues are primarily in Naira. This can lead to additional borrowing to meet debt obligations.
6. External Borrowing: Nigeria has also borrowed from external sources, including international financial institutions and foreign governments. While external borrowing can provide access to funds for development projects, it also increases foreign exchange risk and debt vulnerability.
Addressing the root causes of Nigeria's rising debt requires a combination of fiscal discipline, improved revenue generation, prudent debt management, and policies aimed at promoting economic diversification and sustainability.
The statement read:
“Nigeria’s Public Debt Stock as at December 31, 2023 was N97.34trillion or $108.229 billion. This amount comprises the domestic and external debt stocks of the Federal Government of Nigeria (FGN), the thirty-six (36) States Governments and the Federal Capital Territory (FCT).
“There was an increase of N9.43 trillion over the comparative figure for September, 2023 which was largely due to new domestic borrowing by the FGN to part finance the deficit in the 2024 Appropriation Act and disbursements by multilateral and bilateral lenders.”
Domestic debt makes up 61% of total debt
Delving deeper into the specifics, the DMO explained that the N97.3 trillion public debt is comprised of N59.12 trillion in domestic debt and N38.22 trillion in external debt.
This composition highlights a strategic skew towards domestic borrowing, which constitutes 61% of the total debt, with the remaining 39% coming from external sources.
63.69% of external debt from multilateral and bilateral lenders
The statement further clarified the nature of Nigeria’s external debt, noting that a significant portion (63.79%) is derived from loans from multilateral and bilateral lenders. These loans are primarily concessional or semi-concessional, indicating efforts to manage the debt burden effectively.
The statement added:
“At N59.12 trillion, total domestic debt accounted for 61 percent of the total public debt stock while external debt at N38.22 trillion accounted for the balance of 39 percent.
“Consistent with the debt management strategy, Nigeria’s external debt stock was skewed in favour of loans from multilateral (49.77 percent) and bilateral lenders (14.02 percent) or total of 63.79 percent which are mostly concessional and semi-concessional.”
The DMO emphasised its commitment to employing best practices in public debt management, while also acknowledging the critical role of the fiscal authorities’ ongoing efforts to increase revenue, which is essential for maintaining debt sustainability.
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