A recent report from Price Waterhouse Coopers (PwC) warns that Nigeria might encounter hurdles in debt servicing in 2024 due to the volatility in the forex market.
The PwC Nigeria Economic Outlook for 2024 outlined seven trends that could significantly shape the Nigerian economy in the coming year.
According to the report, public debt is likely to remain elevated, driven by an increased budget deficit and fiscal pressures.
The persistence of higher government spending is attributed to debt service obligations and the management of substantial fiscal deficits.
Furthermore, the report anticipates a potential drop in revenue, which could elevate the deficit-to-GDP ratio from its high of 123 per cent in the first quarter of 2023.
Citing a World Bank report, the PwC analysis warned that without crucial fiscal reforms, the debt service-to-GDP ratio could surge to 160 per cent by 2027.
The report stated, “The public debt stock of ₦87.9 trillion in Q3 2023 may increase further in 2024 due to the budgeted deficit of ₦9.18 trillion and proposed additional borrowing of ₦8.88 trillion in 2024. “Furthermore, if revenue shortfall occurs, the deficit to GDP may further increase. Though the debt stock to GDP is low at 37.1 per cent, the debt servicing to revenue ratio remains high at 124 per cent as of H1 2023.”
Highlighting a potential challenge, the report emphasized, “Servicing external debt in 2024 may remain challenging due to exchange rate volatility and potential devaluation of the naira.”
In June of the previous year, the Central Bank of Nigeria (CBN) announced the unification of the foreign exchange market, resulting in the exchange rate surging to almost N800/$ from $1/471.
A subsequent report revealed a 42 per cent increase in the external debt stock of state governments after the unification of the FX market.
The current external debt stands at $41.5 billion as of Q3, 2023, and any further increase in the exchange rate would necessitate more naira for servicing external debt.
Nigeria faces a critical juncture as it navigates economic challenges, and close monitoring of forex market dynamics will be essential to manage potential impacts on debt servicing in the upcoming year.
