Following the release of the nation’s most recent public debt statistics by the Debt Management Office last week, Nigeria’s debt-to-GDP ratio surpassed 50% for the first time ever.
The DMO reports that Nigeria currently has a N121 trillion public debt portfolio, of which N65.6 trillion is domestic debt and $42.1 billion is international debt (which, when converted to Naira, becomes N56 trillion).
The nominal gross domestic product (GDP) of Nigeria as of December 2023 was N229.9 trillion; in real terms, however, GDP growth was only 2.74%. This may indicate that the nation’s debt-to-GDP ratio has crossed the 50% mark for the first time.
Nigeria’s current GDP to Debt ratio
Nigeria’s nominal GDP increased to N58.5 trillion in the first quarter of 2024 from N51.2 trillion in the same period in 2023.
Nonetheless, the nominal GDP amounts for the second and third quarters of 2023 were N52.1 trillion and N60.6 trillion, respectively.
The GDP increased to N65.9 trillion in the fourth quarter, bringing the GDP over the previous four quarters to N237.5 trillion.
Nigeria’s debt-to-GDP ratio is 52.9%, the highest it has ever been, based on the country’s projected GDP of N229.9 trillion for 2023.
The nation’s debt-to-GDP ratio is 51.2% based on the GDP number of N237.5 trillion for the preceding four quarters.
Why is this important?
Nigeria has always seen its “low” debt-to-GDP ratio as evidence of its economic resiliency and an indication that there was still opportunity to increase its borrowing capacity.
In 2023, Ghana’s debt-to-GDP ratio was approximately 84.9%, and South Africa’s ratio was 72.2%. The rates for Kenya and Egypt were 70.1% and 95.8%, respectively.
Nigeria’s high debt service-to-revenue ratio has always made it difficult for Nigeria to pay its debt service obligations, even though these nations have much greater debt-to-GDP ratios than Nigeria.
Nigeria currently faces significant economic issues and has limited room to further expand its borrowing capacity due to its debt-to-GDP ratio, which has risen above 50%.
Nigeria’s increasing debt profile
Over the past eight years, Nigeria has experienced an increase in its debt profile due to a number of fiscal issues brought on by declining crude oil revenues and rising budgetary expenditure.
For instance, the national debt increased under the Buhari government, rising from N12.6 trillion in 2015 to N97.3 trillion in 2023. The governmental debt increased by as much as N24.3 trilion in Naira between December 2023 and March 2024.
The Debt Management Office (DMO) provided an explanation for the increase, stating that new borrowing and naira devaluation combined to cause the N24.33 trillion increase in the total debt.
The DMO went on to say that in the first quarter of 2024, Nigeria borrowed N7.71 trillion in new money.
The N2.81 trillion new borrowing comes from the N6.06 trillion new domestic borrowing authorised by the 2024 Appropriations Act, while the N4.90 trillion comes from the securitization of the N7.3 trillion Ways and Means Advances that were authorised by the National Assembly.
According to Moody’s, a global ratings organisation, Nigeria’s debt interest payments might account for as much as 36% of the country’s federal government’s revenue in 2024.
The company claims that interest rates for local government borrowing by the federal government increased from an average of 12.8% in 2023 to almost 19% in the first five months of 2024 due to the CBN’s aggressive monetary policy stance.
