The latest data from The Central Bank of Nigeria (CBN) has indicated the significant strain Loan repayment places on Nigeria’s finances. In the first nine months of 2024, the Federal Government allocated 47 percent of its expenditure towards servicing debt, underscoring the burden of rising debt obligations. This total ₦8.94 trillion in debt service payments reflects a 56.8 percent increase compared to ₦5.69 trillion in 2023. This rising cost indicates a troubling fiscal trajectory where a large portion of the national resources is channelled towards loan repayment rather than developmental projects.
Furthermore, the growing liability ratio demonstrates the nation’s increasing reliance on borrowing to fund budgetary operations amid widening fiscal deficits. The Federal Government’s total expenditure during the first nine months of 2024 reached ₦18.97 trillion, with loan repayment accounting for nearly half. This ratio marks a significant rise from the 42 percent observed in the same period of 2023. Moreover, the debt-to-revenue ratio further illustrates the fiscal strain. In 2023, loan repayment accounted for 132 percent of retained revenue, but this figure escalated to 147 percent in 2024, as ₦6.08 trillion in Revenue was insufficient to cover liability obligations.
Impact of rising debt servicing on capital investment and economic growth.
Meanwhile, the disproportionate allocation of government funds to loan repayment directly impacts the country’s capacity to invest in essential infrastructure. While the Federal Government increased capital expenditure by 20.8 percent from ₦3.19 trillion in 2023 to ₦3.86 trillion in 2024, this growth pales compared to the rise in loan repayment costs. Consequently, the funds for developmental projects remain limited, further compounding the national Infrastructure deficit. However, with nearly half of the national expenditure funnelled into liability servicing, the room for capital projects is reduced.
Moving forward, recurrent expenditures also surged from ₦10.38 trillion in 2023 to ₦15.11 trillion in 2024, driven by rising personnel costs and increased overhead spending. Personnel costs rose by 20 percent to ₦3.59 trillion, while overhead expenses surged by 51.4 percent to ₦892.85 billion, reflecting the government’s effort to sustain Public Sector Salaries despite fiscal pressures. A particularly alarming aspect of Nigeria’s public financial challenge is the escalating debt-to-revenue ratio.
Consequences of high debt-to-revenue ratio and limited fiscal space.
Debt servicing exceeding revenue collections creates a precarious financial environment where essential governmental functions and development programs are compromised. The retained revenue of ₦6.08 trillion in 2024 was grossly inadequate compared to the ₦8.94 trillion allocated for liability repayment, underscoring how loan burdens constrain fiscal flexibility. This imbalance has profound implications for economic stability. With limited resources left after repayments, the government struggles to fund critical sectors such as education, healthcare, and infrastructure development. The fiscal deficit, which widened by 39.3 percent from ₦9.25 trillion in 2023 to ₦12.89 trillion in 2024, further highlights the growing gap between revenue and expenditure.
In response, under President Bola Tinubu, the federal government has acknowledged the severity of the loan crisis, claiming to reduce the obligation service ratio from 97 percent to 68 percent. However, CBN data showing a 147 percent debt-to-revenue ratio in 2024 indicates worsening conditions. Tinubu’s administration has committed to reducing reliance on borrowing, yet the deficit servicing trend suggests a need for more aggressive fiscal reforms. As a result, the International Monetary Fund (IMF) has emphasised the importance of revenue mobilisation to reduce debt service burdens.
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Various recommendations include renegotiating existing loan obligations to secure better repayment terms and focusing on domestic revenue sources to reduce external borrowing pressures. The Nigerian Economic Society and other policy experts have stressed the importance of ensuring that borrowed funds are directed towards productive capital projects rather than consumption-focused expenditures. However, Nigeria must prioritise balancing liability obligations with developmental needs. This entails implementing robust Tax reforms, expanding the revenue base, and reducing unnecessary recurrent spending.