Nigeria’s debt servicing has reached alarming levels, with recent reports revealing the substantial amount of N4.6 trillion spent on debt servicing over a 15-month period. The Debt Management Office (DMO) disclosed that in the first quarter of 2023 alone, the government allocated a staggering N1.24 trillion to service its debt, highlighting the strain on the country’s finances. These figures raise concerns about the impact of high debt servicing on Nigeria’s economy and the sustainability of its debt burden.
The DMO report also reveals that domestic debt servicing accounted for N874.12 billion, while N368 billion ($801.36 million) was spent on external debt servicing. The breakdown of the domestic debt service data indicates significant monthly payments, with N244.56 billion in January, N146.41 billion in February, and a substantial N483.149 billion in March. These numbers reflect the growing financial obligations the government must meet to service its debts.
Interest on treasury bills (NTBs) accounted for N56.5 billion of the domestic debt servicing, while interest on FGN bonds consumed a substantial N723.95 billion. Additionally, rental payments on Sukuk amounted to N8.17 billion. On the external front, debt service payments were made to various international financial institutions, including the International Development Association, International Bank for Reconstruction and Development, African Development Bank, and others.
Furthermore, the DMO report indicates a 7.22 percent increase in Nigeria’s total public debt, which stood at N49.85 trillion ($108.30 billion) as of March 31, 2023. The external debt accounted for N19.64 trillion ($42,671.70), while domestic debt reached N30.21 trillion ($65,623.48). The rising debt burden poses significant challenges for the country’s financial stability and long-term economic growth.
The increased debt servicing has strained Nigeria’s finances, diverting substantial resources away from crucial areas such as infrastructure development, healthcare, and education. With limited funds available for investment and development, the government’s ability to stimulate economic growth and create employment opportunities is severely hindered.
Moreover, the rising debt burden raises concerns about debt sustainability. Nigeria’s increasing debt-to-revenue ratio suggests that the government’s revenue-generating capacity is insufficient to meet its debt obligations. This situation calls for urgent attention to explore viable strategies to enhance revenue generation and reduce reliance on borrowing.
Critics, including the Lagos Chamber of Commerce and Industry and the Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, have expressed alarm over Nigeria’s escalating debt profile without corresponding revenue capacity. They emphasize the need for fiscal prudence, effective debt management, and a comprehensive plan to improve revenue generation through diversified sectors such as agriculture, manufacturing, and services.
Addressing Nigeria’s high debt servicing requires a multifaceted approach. The chief executive of Cashlinks, Livinus Azosiwe, said the government must prioritize revenue mobilization, curtail wasteful spending, and implement structural reforms that foster economic diversification and attract private investment. He added that enhancing transparency and accountability in public finance management is crucial to ensure that borrowed funds are judiciously utilized for development purposes.
“Additionally, there is a need for proactive measures to manage the debt burden effectively. These may include debt restructuring, refinancing, and exploring alternative financing options such as public-private partnerships.
By adopting a comprehensive and sustainable debt management strategy, Nigeria can alleviate the strain of debt servicing and create a more favorable environment for economic growth and development,” he stated.
An economist, Dr. Gbenga Johnson, said the escalating debt servicing in Nigeria poses significant challenges to the country’s economy and long-term sustainability.
“Urgent action is required to address the issue by strengthening revenue generation, improving fiscal management, and exploring innovative approaches to debt management. It is crucial for the government to strike a balance between meeting its debt obligations and investing in critical sectors that drive economic growth and create employment opportunities. Only through prudent financial management and sustainable policies can Nigeria navigate the challenges posed by high debt servicing and secure a path towards long-term economic prosperity,” he said.
Economist, and social affairs analyst, Godwin Oniha, said the government must embark on venture that will boost its revenue generation, reduce reliance on borrowing from the international capital market, maintain a realistic debt management model to help improve debt sustainability and fiscal prudence, improve public borrowing transparency and accountability, strengthen the foreign exchange policy to reduce the impact of volatility on loan repayment, strengthen legislative review approval processes to ensure that only concessional loans are approved and to establish an independent committee that comprises CSOs representatives, the auditor general office, the Ministry of Finance and the DMO to carry out independent review of all future loan requests with the view to determine their variability and importance.
