In the first quarter of 2024, debt servicing expenditures accounted for almost 74% of the federal government’s retained revenue.
The Central Bank of Nigeria’s (CBN) most recent quarterly statistical report supports this.
The federal government’s retained revenue in the first quarter of 2024 was N1.76 trillion.
Nonetheless, debt servicing consumed N1.31 trillion at that time or around 74% of government revenue.
This graphic illustrates how the government’s resources are still under financial duress due to its substantial debt obligations.
Debt servicing accounted for just 29% of FG’s expenses
Even though debt service accounted for 74% of federal government revenue during the time under consideration, it only made up for 29% of overall expenditures.
Government spending fell by 12.9% from N5.28 trillion in Q1 2023 to N4.59 trillion by 2024, despite retained revenue increasing by 33.8% to N1.76 trillion from N1.32 trillion in the same time in 2023.
Along with a decline in spending, the fiscal deficit shrank as well, falling from N3.96 trillion in Q1 of last year to N2.83 trillion in the same period this year, a 29% decrease.
Additionally, because the debt servicing to revenue ratio was 149% in the first quarter of last year, there was a fall in debt servicing spending, which was 33.5% lower than N1.97 trillion in Q1 2023.
Even if the ratio decreased this year, the high proportion nonetheless highlights the significant difficulty in managing the nation’s debt sustainably because a sizable share of revenue is used to pay down current debt rather than funding growth initiatives.
Debt servicing expenses outweigh capital and manpower expenditures
The federal government spent more money on debt servicing than on capital projects or employee expenses.
The amount spent on personnel in Q1 2024 was N1.15 trillion, a 17.1% increase over the N978.11 billion spent in the same time the previous year.
However, from N1.8 trillion in the same quarter of 2023 to N1.15 trillion in Q1 2024, capital expenditure decreased by 35.9%.
This decreased capital spending raises concerns since it may indicate a drop in funding for long-term development initiatives like infrastructure.
Sustained cuts in this area could obstruct development and have an impact on the country’s overall economic well-being. Capital expenditure is essential for economic growth and development.
Things to note
According to a previous report by The News Chronicles, Nigeria incurred N7.8 trillion in debt servicing costs in 2023, a 121% rise from N3.52 trillion in the year prior.
Nigeria’s expenditure of almost $1.12 billion on servicing its foreign debt during the first quarter of 2024 was also disclosed, underscoring the mounting impact of external debt on the country’s budget.
Over the past few years, debt service payments have been climbing significantly, according to data from the CBN. Debt servicing jumped from $801.36 million in Q1 2023 to $1.12 billion in Q1 2024, a 39.7% increase.
The News Chronicles also noted that during January to March 2024, Nigeria paid off its external debt with almost 70% of its dollar payments.
A sizeable portion of $1.12 billion of the $1.61 billion in overall outflows during this time, according to CBN data, went towards paying down external debt.
This percentage, which stands for a sizeable portion of the country’s financial resources, is up significantly from 49% in Q1 of the previous year.
The World Bank released a statement expressing its grave worry over the rising costs of debt service that developing nations around the world are facing. The Chief Economist and Senior Vice President of the World Bank, Indermit Gill, stressed the seriousness of the situation and the possibility of a global financial catastrophe in the absence of prompt and concerted action.
Gill claims that record-high debt and skyrocketing interest rates have put many developing countries on a perilous financial path that may result in economic hardship and difficult resource allocation decisions.
The elevated debt service to revenue ratio is indicative of persistent fiscal difficulties and underscores the pressing requirement for deliberate economic modifications to augment revenue production and diminish reliance on external borrowing.
Sustainable economic growth and stability are seriously hampered by the government’s increasing inability to support public services and development initiatives due to the mounting debt load.
The Nigerian government’s overall public debt climbed dramatically to N121.67 trillion (about $91.46 billion) as of March 31, 2024, according to a recent announcement by the Debt Management Office (DMO).
This amount includes the total external and internal debt of the Federal Government of Nigeria (FGN), the 36 state governments, and the Federal Capital Territory (FCT), according to a statement from the DMO.
By contrast, the total governmental debt was N97.34 trillion (or roughly $108.23 billion) as of December 31, 2023. This is a significant rise of N24.33 trillion, or 24.99%, in just three months.
Nonetheless, the depreciation of the naira is the primary cause of the increase, given that the overall debt was decreased by $16.77 billion, or 18.34%, in dollar terms.
