According to data from the Central Bank of Nigeria’s (CBN) most recent quarterly statistical bulletin, Nigeria’s debt service-to-revenue ratio dropped to 74.3% (₦1.31 trillion) of total retained Revenue in the first quarter of 2024, down from ₦1.97 trillion in the same period in 2023. Nigeria recorded a lower debt-to-revenue ratio as a result of revenue growth outpacing debt service growth. This decline, driven by exchange rate gains and the partial elimination of fuel subsidy, is in contrast to previous ratios of 149.5% in Q1 2023, 120.5% in 2022, 123.2% in 2021, and 96.7% in 2020.
The Nigerian Economic Society’s president, Adeola Adenikinju, stated that while revenue has surged more than debt servicing, the actual value of debt has not decreased. He stated that gains in exchange rates, the elimination of fuel subsidies, which allowed the government to save money, and the Federal Inland Revenue Service’s increased capacity to collect taxes were all responsible for the rise of fiscal revenue. Experts recommended that rather than taking on more costly commercial debt, the nation should borrow more money from concessional sources like multilateral institutions that offer low interest rates.
Substantial amount of revenue is diverted to serving debt.
During the period under review, debt servicing only constituted 29% of total federal government expenditures, but represented 74% of revenue. In the first quarter of 2024, Government Spending decreased by 12.9% from ₦5.28 trillion to ₦4.59 trillion, while retained revenue increased by 33.8% to ₦1.76 trillion from ₦1.32 trillion during the same period in 2023. Together with a decrease in spending, there was a corresponding decrease in the budget deficit, which dropped by 29% from ₦3.96 trillion in Q1 of last year to ₦2.83 trillion in the same period this year.
Furthermore, there was a decrease in debt servicing spending, which was 33.5% less than ₦1.97 trillion in Q1 2023, as a result of the debt servicing to revenue ratio of 149% in the first quarter of last year. The high percentage, even though it declined this year, nevertheless emphasizes how challenging it is to manage the country’s debt effectively because a substantial amount of revenue is diverted from funding growth projects to paying off current debt. It was suggested that the country can control its debt by raising its income.
Debt-to-revenue ratio may rise to 110.4% in 2024.
It should be noted that only domestic debt experiences this decline in debt-service-to-revenue; External Debt does not. The senior vice president of the World Bank, Indermit Gill, a chief economist, recently stressed the gravity of the situation and the possibility of a global financial catastrophe in the absence of prompt and concerted action. He said that many developing countries are on a perilous path due to record-high debt and skyrocketing interest rates, which could result in economic turmoil and difficult decisions about resource allocation.
Compared to capital projects or staff expenses, the federal government spent more money paying off its debt. The World Bank has voiced worries about the escalating costs associated with debt servicing and cautioned that this could result in Economic collapse if necessary action is not taken promptly. This is as the Afreximbank forecasted that Nigeria’s debt-to-revenue ratio may rise to 110.4% in 2024. The debt service ratio has improved as a result of more revenue, but the total amount of debt has not dropped, underscoring the necessity of deliberate economic reforms to boost revenue creation and lessen reliance on borrowing.
Related Article: Nig. Faces External Debt of $45 billion
As of March 31, 2024, the total public debt of Nigeria climbed dramatically to ₦121.67 trillion (about $91.46 billion), according to the Debt Management Office (DMO) of that country. DMO revealed that this sum represents the total debt, both foreign and domestic, owed by the Federal government, the 36 state governments, and the Federal Capital Territory (FCT). This figure indicates a notable rise of N24.33 trillion, or 24.99 percent, in just three months, when compared to ₦97.34 trillion (or roughly $108.23 billion) recorded as of December 31, 2023.