Concerns on rising Nigeria’s debt profile
Nigeria’s public debt has reached alarming proportions, with the Debt Management Office (DMO) reporting a staggering increase of N12.6 trillion within just three months, bringing the total debt to N134.3 trillion (approximately $91.3 billion) by the end of the second quarter of 2024. This marks a troubling 10.35% rise from the previous quarter, further deepening the fiscal woes of Africa’s largest economy. While the government’s borrowing may seem like a short-term solution to financing its ambitious development goals, it raises serious questions about the country’s long-term economic sustainability.
Former President Olusegun Obasanjo, who played a key role in securing debt forgiveness for Nigeria in the early 2000s, has expressed grave concern about the country’s mounting debt burden. In a recent discussion, Obasanjo cautioned that the present debt profile poses a serious challenge for both current and future generations. His remarks resonate deeply, especially considering the progress made during his presidency, when Nigeria managed to secure significant debt relief. Today, however, the situation has reversed, with the country facing a debt crisis that risks undermining the hard-won economic gains.
Nigeria’s total debt is composed of both domestic and external liabilities. Domestic debt is owed to local creditors, such as commercial banks and pension funds, while external debt is owed to international organisations and foreign governments. Additionally, subnational debt represents the liabilities of state governments and the Federal Capital Territory (FCT). The rapid rise in borrowing, particularly in the face of declining oil revenues and rising inflation, signals a growing fiscal vulnerability that needs urgent attention.
The implications of rising debt levels extend far beyond the numbers on paper. The immediate concern is the rising debt servicing burden. As debt levels grow, an increasing portion of Nigeria’s national budget is diverted to servicing this debt, leaving less room for critical investments in infrastructure, education, healthcare, and social services. With inflation also on the rise, the purchasing power of ordinary Nigerians is being eroded, further exacerbating the challenges faced by the average citizen.
Moreover, Nigeria’s high levels of debt are putting pressure on the naira, contributing to its devaluation. This, in turn, makes imports more expensive, further fuelling inflation and diminishing the purchasing power of the public. In such a fragile economic environment, the government’s ability to stimulate job creation and foster economic growth becomes severely limited. As unemployment rates climb, poverty deepens, with an increasing proportion of the population falling into economic hardship.
The social consequences of rising debt are equally alarming. As more of the government’s revenue is directed toward servicing its debt, there is less available for social programmes that are vital for the country’s development. Essential sectors such as healthcare, education, and infrastructure suffer from reduced investment, hampering the government’s ability to improve the quality of life for its citizens. This is a dangerous path that could lead to the erosion of social stability, as basic services become out of reach for many Nigerians.
Additionally, the lack of transparency in the management of public debt further compounds the problem. When borrowing is done without clear oversight or accountability, it opens the door to corruption and the misappropriation of funds. There is also a real concern that borrowed funds may not be used efficiently, leading to wastage and misallocation of resources, which only deepens the country’s fiscal crisis.
To address this growing challenge, Nigeria must take decisive action. First and foremost, there is an urgent need for fiscal discipline. The government must adopt transparent and accountable debt management practices that ensure borrowed funds are used for productive investments. Nigeria must prioritise projects that promote sustainable development, balancing short-term economic gains with long-term environmental and social goals.
Furthermore, it is imperative that the country reduces its dependence on oil revenues. Diversifying revenue streams is critical to ensuring that the country is not overly reliant on the volatile oil market. Exploring alternative sources of funding, such as through non-oil exports or domestic revenue generation, should be a top priority.
Equally important is investing in human capital. Allocating resources to education, healthcare, and social programmes is essential to improving the quality of life for Nigerians and fostering long-term economic development. The government must recognise that a healthy and educated population is key to a prosperous future.
Public-private partnerships must also be encouraged to help reduce the burden on public finances. By fostering collaboration between the government and private sector, Nigeria can leverage private sector expertise and resources to tackle its development challenges while minimising the fiscal strain on the public purse.
The government must also act swiftly to restore the country’s international credit rating. If Nigeria continues on its current borrowing trajectory, the risk of a credit rating downgrade becomes more likely, which would only increase the cost of borrowing and further entrench the cycle of debt.
In conclusion, Nigeria’s rapidly growing debt profile is a wake-up call that cannot be ignored. The country is at a crossroads, and its leaders must act decisively to address the root causes of the debt crisis. Without a clear and sustainable fiscal strategy, Nigeria risks compromising its future prosperity, condemning future generations to the same financial struggles faced today. It is time for a collective effort to ensure that the country’s debt burden is brought under control and that Nigeria can chart a path towards sustainable economic growth and social stability.
