The International Monetary Fund (IMF) has dismissed growing fears about a looming debt crisis for Nigeria, affirming that the country’s debt remains at a moderate risk level despite its significant increase. Gita Gopinath, IMF’s First Deputy Managing Director, made this known during an exclusive interview in Lagos and a meeting with Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, in Abuja. While acknowledging the economic challenges facing the country, Gopinath maintained that Nigeria’s sovereign debt is still sustainable, provided the government sustains sound economic policies and strengthens Revenue mobilization.
According to the Debt Management Office (DMO), Nigeria’s total public debt rose to ₦142.3 trillion as of September 30, 2024, up from ₦134.3 trillion recorded in June 2024. The rise was largely driven by the Devaluation of the naira, with the country’s External Debt increasing marginally from $42.9 billion to $43.03 billion. In Naira terms, external debt spiked by 9.22% from ₦63.07 trillion to ₦68.89 trillion within the same period. However, despite the debt increase, the IMF categorized Nigeria’s debt as a moderate risk but raised concerns over the high cost of servicing the debt.
Government urged to ramp up revenue mobilization.
Gopinath warned that with 75% of the country’s revenue allocated to debt servicing, the government has little fiscal space left for social and developmental projects. To sustain the current debt level, the IMF advised the Nigerian government to accelerate revenue mobilization through Tax reforms, the digitalization of tax systems, and the elimination of tax loopholes. Gopinath urged the government to channel savings from the removal of Fuel Subsidies towards targeted social interventions and development projects aimed at reducing the burden of the high cost of living.
Commending the Central Bank of Nigeria’s (CBN) recent foreign exchange market reforms, she noted that the measures had enhanced market stability. However, she advised the apex bank to sustain a tight Monetary Policy regime to curb Inflation and stabilize the naira. Recall that the IMF’s latest Fiscal Monitor Report projects that Nigeria’s debt burden will ease by 2025. The report showed that the country’s debt-to-GDP ratio rose from 46.1% in 2023 to 50.7% in 2024 but is expected to decline to 49.6% by 2025.
Recent IMF’s affirmation nullifies previous reports assertions.
This projection, coupled with the new revelation on the country’s debt profile, gives a little ease from the high-risk level many believed the country was due to the mounting debt pressure. Earlier reports had asserted that Nigeria was struggling to service its millions of naira debt profile, with debt repayment consuming about 95% of its revenue. The sharp rise in public debt from ₦97.34 trillion in December 2023 to ₦134.3 trillion in March 2024, coupled with the $10 billion budget deficit, had previously sparked fears of a looming debt crisis.
The current moderate risk status can be attributed to various economic reforms implemented by the administration of President Bola Ahmed Tinubu. When Tinubu took office in May 2023, Nigeria’s public debt stood at ₦87.4 trillion, while external debt stock was at $43.1 billion. The administration inherited a challenging fiscal environment but has since made efforts to ease the country’s debt burden. In line with its commitment to fiscal consolidation, the federal government announced that it had paid ₦4.8 trillion out of the ₦7.3 trillion Ways and Means debt inherited from the previous administration.
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Additionally, the government cleared the $7 billion forex backlog and reduced the debt service-to-revenue ratio from 97% to 68% within 16 months. The administration also inherited over $33 billion in foreign reserves, which has played a crucial role in stabilizing the economy. While the IMF’s assessment offers a positive outlook, it emphasized the need for Nigeria to sustain ongoing economic reforms. The organization emphasized that revenue diversification, improved governance, and strict fiscal discipline will be key to preventing a return to unsustainable debt levels.