Nigeria’s public debt is expected to rise to N130tn this year, sparking concerns about the nation’s debt-to-GDP ratio.
According to The PUNCH, this was disclosed in a recent report by Afrinvest, an investment management company, titled, ‘Bank Recapitalisation, Catalyst for a $1tn Economy’, released in Abuja.
The National Bureau of Statistics reported that Nigeria’s public debt, which includes both external and domestic debt, reached N121.67tn in Q1 2024, up from N97.34tn in Q4 2023, marking a quarter-on-quarter growth rate of 24.99 per cent.
Afrinvest projected that by the end of 2024, the fiscal deficit, total public debt stock, debt-to-GDP ratio, and debt-servicing-to-revenue rate will surpass N13.0tn, N130tn, 55 per cent, and 60 per cent, respectively.
As of the first quarter of 2024, Nigeria’s public debt stood at N121.7tn, with domestic debt accounting for N77.5tn, 63.6 per cent, and external debt making up N44.2tn (36.4 per cent).
The domestic debt portfolio includes N44.8tn in Federal Government bonds, N20.3tn in Treasury bills, and N12.4tn in other domestic debt. The external debt consists of N14.3tn from multilateral creditors, N10.9tn from bilateral creditors, and N19.0tn from commercial creditors.
Afrinvest’s report also criticized the 2024 budget for being based on “overly optimistic” revenue assumptions, potentially leading to another year of disappointing budget performance.
“The expectation of a 43.9 per cent share of the projected revenue from oil and other minerals is unrealistic,” the report stated.
In their assessment of the 2023 actual budget, Afrinvest highlighted a consistent under-performance, with actual revenue exceeding the budgeted amount by 7.6 per cent, reaching N11.9tn.
However, total expenditure increased by 31.8 per cent to N18.8tn, resulting in a higher deficit of N46.9tn.
“The share of Federal Government’s debt in total public debt stock rose 44.6 per cent year-on-year to N487.3tn, accounting for 89.7 per cent of total public debt stock by year-end,” the report noted.
Afrinvest also pointed out that the Federal Government’s extensive borrowing plans could negatively impact banks’ deposits due to the more attractive yields on risk-free securities compared to bank deposit interest rates.
They further stated, “We believe banks would continue to battle heightened risks of asset deterioration, partly induced by the consumption-tilted budgetary patterns.”
Meanwhile, Afrinvest praised the Central Bank of Nigeria’s efforts to streamline Bureau De Change operators, maintain a unified forex market policy, and resume periodic forex sales to approved BDCs at discounted rates.
“The CBN supervision of BDC operations has been enhanced, and compliance has improved due to higher stakes of the operators,” the report noted.
However, Afrinvest cautioned that the intended short-term pain from this policy has become persistent due to insufficient forex reserves to meet market demand.
They recommended exploring alternative forex sources, such as bilateral loans, natural resource-tied loans, debt-for-nature swaps, and asset concessions for short-term relief.
“For the forex market to experience sustainable tranquillity, traditional forex inflow sources – oil production, remittances, and foreign portfolio investment – must be revitalised by supportive fiscal policies. Standalone, these policies will only deliver short-term relief on the forex debacle,” the report stated.
