The CEO of CFG Advisory, Mr. Adetilewa Adebajo, has pointed out a concerning situation in Nigeria where debt repayment has surpassed both recurrent and capital expenditure, despite the inflated recurrent spending in the 2024 budget and a notable Infrastructure deficit. He also noted that the country’s Foreign Direct Investment (FDI) is currently at an all-time low of under $1 billion. Adebajo shared this information while discussing on “Nigeria’s Fiscal Environment in an Era of Monetary Policy Tightening” at the bi-monthly forum of the Finance Correspondents Association of Nigeria (FICAN) in Lagos.
Nigeria is struggling to keep up with servicing its $130 billion debt, as debt repayment now consumes 95 percent of the country’s Revenue. The Debt Management Office (DMO) reported that Nigeria’s public debt has increased from ₦97.34 trillion in December 2023 to ₦121.67 trillion in March 2024. With the addition of a $10 billion deficit from the 2024 budget, it is evident that Nigeria’s debt levels have become unmanageable. He cautioned that in order to prevent being subjected to the regulations of the Paris and London Clubs, it is essential to begin exploring measures on restructuring domestic and international debt simultaneously with the implementation of economic reforms and efforts to increase revenue.
Foreign direct investment falls below $1 billion.
With ongoing development challenges and a notable infrastructure shortage, he said, Nigeria is on track to become the third largest Economy in Africa, ranking behind South Africa and Egypt. The expert noted that Nigeria’s economy is currently experiencing stagflation, but ongoing reforms are being implemented to steer it towards a more sustainable path of growth. He also observed that the FAAC account has experienced a significant 130 percent growth from May to November 2023, surpassing ₦1 trillion as a result of the implementation of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the elimination of fuel Subsidies.
In the year 2024, the International Monetary Fund (IMF) said the country is expected to see a small rise in its government debt-to-GDP ratio, climbing from 46.3% in 2023 to 46.6%. Foreign direct investment has reached historical lows, falling below $1 billion. In the past 7 years, the macroeconomic landscape has deteriorated, resulting in a substantial loss of $180-200 billion in
Gross Domestic Product (GDP), with the current GDP standing at $390 billion. To address this, Adebajo proposed that Nigeria should engage in discussions with creditors to reorganize and prolong the duration of debts, making it easier to make payments and lowering interest costs.
8-10 percent GDP growth rate to ensure sustainability.
According to him, a three percent GDP growth is not enough to propel the country’s economy, noting that Nigeria needs about 8-10 percent GDP growth rate to ensure Sustainability. This is said considering about 40 percent of the population are living in Poverty and the poor industrial Productivity in the country. The expert pointed out that our international credit ratings have been downgraded to Caa1 junk bond status due to decreasing reserves and rising credit default swap premiums. He opined that the Nigerian economy had a strong foundation but was hindered by ineffective economic governance in previous years, preventing it from reaching its full potential for growth.
He believes that the newly assembled economic management team has sparked optimism due to their high ratings. The country’s future in terms of business projections and Economic Growth hinges on their dedication and honesty in executing reform policies. Their objective is to pull the economy out of stagnation and achieve stable GDP growth targets, he stressed. Adebajo proposed that the government address fiscal issues by cutting unnecessary government spending, removing inefficient subsidies, and enhancing the effectiveness of public services.
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Adebajo recommended increasing the range of taxable income, enhancing Tax enforcement, and implementing fresh revenue streams like value-added tax and property taxes. To foster public confidence and lure foreign investment, it is vital to enhance the transparency and accountability of government expenditures. The central bank ought to persist with strict monetary measures to tackle Inflation commonly linked with stagflation. Adebajo further proposed upholding favourable real interest rates to entice foreign investment and promote savings. He also suggested that in order to boost exports and lessen dependence on imports, it is essential to uphold a competitive exchange rate.
