Nigeria’s debt repayment currently surpasses both recurrent and capital expenditures, notwithstanding the bloated recurrent expenditures in the 2024 budget and a large infrastructure gap.
In addition, the nation’s Foreign Direct Investment (FDI) has dropped to a record low of less than $1 billion.
Speaking on the subject of “Nigeria’s Fiscal Environment in an Era of Monetary Policy Tightening” at the July 2024 edition of the Finance Correspondents Association of Nigeria (FICAN) bi-monthly discussion in Lagos, Tilewa Adebajo, CEO of The CFG Advisory, made this revelation.
The 2024 budget allocated N8.7 trillion for capital expenditures, of which N1.32 trillion will go towards infrastructure development.
According to Adebajo, debt repayment now exceeds both recurring and capital expenditure, meaning that Nigeria’s $130 billion current debt burden is being serviced by 95% of earnings.
According to the Debt Management Office (DMO), Nigeria’s national debt stock increased from N97.34 trillion in December 2023 to N121.67 trillion in March 2024.
“Nigeria’s debt load is now obviously unmanageable. When you factor in an additional US$10 billion from the budget deficit for 2024, it raises the question of whether Nigeria will end up like Ghana, Zambia, or Ethiopia by default. To avert the imposition of the Paris and London Clubs, discussions about restructuring both domestic and external debt must begin alongside ongoing economic reforms and revenue drives,” he said.
He continued by saying that Nigeria is expected to overtake South Africa and Egypt as the continent’s third-largest economy, despite a massive infrastructural gap and growth concerns.
Adebajo lamented that Nigeria’s economy is still experiencing stagflation while outlining the current status of the country’s economic indicators and ongoing changes intended to attain a trajectory of sustainable growth.
He pointed out that the FAAC account increased by 130% to over N1 trillion between May and November 2023 as a result of the launch of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the elimination of fuel subsidies.
“FDI is at a record low of less than $1 billion; the macroeconomic situation has deteriorated over the last seven years, with a loss of US$180–200 billion in GDP, currently at US$390 billion; power transmission and distribution infrastructure is still extremely poor, impacting industry and economic growth.”
“GDP growth of 3 percent is not sustainable for our 200 million people; Nigeria needs GDP growth of 8–10 percent to be sustainable; 135 million Nigerians live in poverty, with 40 percent of the country’s population unemployed and very low levels of industrial output and job creation. Dwindling reserves and rising credit default swap premiums have resulted in Caa1 junk bond rating status for our international credit ratings,” the finance and economic expert explained.
He thinks that although the Nigerian economy’s fundamentals are still strong, previous economic leadership hasn’t been able to tap into the country’s potential and expand the economy.
“Expectations are high, though, because a new and highly regarded economic management team is in place. Their honesty and dedication to putting their reform proposals into action will determine whether our business projections and economy succeed or fail. The objective is to achieve sustainable GDP growth targets and pull our economy out of stagflation,” he underlined.
In an effort to address the nation’s economic problems, the head of CFG Advisory suggested that Nigeria bargain with creditors to restructure and extend the maturities of debt, enabling more affordable interest rates and more manageable repayment schedules.
He suggested that Nigeria adopt fiscal restraint by cutting back on unnecessary government spending, getting rid of unnecessary subsidies, and boosting the effectiveness of public services.
“Increase tax collection, broaden the tax base, and add new income streams including property taxes and value-added tax (VAT). To increase public confidence and draw in foreign investment, government expenditures should be made more accountable and transparent. Tight monetary policy should be maintained by the central bank to fight inflation, which is frequently linked to stagflation.”
He suggested that Nigeria adopt fiscal restraint by cutting back on unnecessary government spending, getting rid of unnecessary subsidies, and boosting the effectiveness of public services.
“Increase tax collection, broaden the tax base, and add new income streams including property taxes and value-added tax (VAT). To increase public confidence and draw in foreign investment, government expenditures should be made more accountable and transparent. Tight monetary policy should be maintained by the central bank to fight inflation, which is frequently linked to stagflation.”
