While the ordinary Nigerian is faced with tough economic times, the government seems to be having a field day simply borrowing to survive. Latest data from the Debt Management Office for the Q3, 2024 testify to the harsh reality. But unlike the government, the manufacturers say they can’t sell their goods, the country’s foreign reserves are not doing better at least for now. FESTUS OKOROMADU, in this report reviews the implications of soaring debt on the economy.
Recent revelations on Nigeria’s public debt portfolio have continued to take center stage of debate as some financial experts perceive the government’s penchant for borrowing from the domestic market as assuming a dangerous dimension.
According to data from the Debt Management Office the country’s total public debt in the third quarter 2024 grew by 5.97 percent or N8.02 trillion to N142.3 trillion as at September 30, 2024, compared to N134.3 trillion on June 30, 2024.
In addition, the cost of servicing the total public debt reached an estimated N3.57 trillion in Q3 2024.
Unfortunately, analysis of the debt comprising external and domestic obligations shows a significant impact of fluctuation in the foreign exchange market on external borrowings when converted to naira terms.
According to the DMO, external debt in dollar terms increased marginally by 0.29 percent from $42.90 billion in June to $43.03 billion in September, while external debt service payments in Q3 amounted to $1.34 billion, which translated to N2.14 trillion when converted at the September exchange rate of N1,601.03/$.
“In order not to compound the already huge debt burden the country is facing, every effort should be made to ensure that all long-term funds sourced from the debt capital market are tied to self-liquidating projects”
Public debt
In naira terms, external debt surged by 9.22 percent, rising from N63.07 trillion to N68.89 trillion within the quarter.
Primarily, the sharp increase in the external debt portfolio was attributed to the depreciation of the naira, with the exchange rate weakening from N1,470.19/$ in June to N1,601.03/$ by the end of September.
Domestic debt, on the other hand, reduced by 5.34 percent in dollar terms, falling from $48.45 billion in June to $45.87 billion in September.
On the other hand, domestic debt in naira terms rose by 3.10 percent, increasing from N71.22 trillion to N73.43 trillion during the period under review.
Further breakdown shows that the Federal Government’s external debt accounted for $38.12 billion in September, up from $38.01 billion in June, while states, the Federal Capital Territory held $4.91 billion in external debt, a slight increase from $4.89 billion.
For domestic debt, the Federal Government’s obligations rose from N66.96 trillion to N69.22 trillion, while states and the FCT recorded a minor reduction from N4.27 trillion to N4.21 trillion.
Overall, Nigeria’s total public debt in dollar terms fell by 2.70 percent, from $91.35 billion in June to $88.89 billion in September.
Burden of naira-denominated debt
The rising debt profile, particularly in naira terms, raises concerns over debt sustainability, especially with the exchange rate volatility driving up the local currency cost of external obligations.
Further analysis showed that the Federal Government’s domestic debt stock of N69.22 trillion as of September 30, 2024, was largely driven by increased issuance of Federal Government bonds and a rise in promissory notes, highlighting the government’s reliance on domestic borrowing to meet fiscal obligations.
Analysis of the debt by instruments shows that Federal Government bonds remained the largest component, rising by 4.47 percent to N54.65 trillion in September from N52.32 trillion in June.
This represents 78.95 percent of the total domestic debt stock, up from 78.13 percent in the previous quarter.
The issuance of bonds in naira accounted for the majority of the increase, as the dollar-denominated bond was newly introduced to the domestic debt stock at N1.47 trillion.
Nigeria had successfully launched its first-ever domestic dollar-denominated bond, seeing over $900m in subscriptions.
The $500m bond, coordinated by the Africa Finance Corporation, marked a pivotal moment in Nigeria’s economic development and highlights the growing confidence in the country’s capital market.
The five-year bond, which was issued at par with a 9.75 percent annual coupon, witnessed a 180 per cent subscription.
This domestic bond added N1.47 trillion to Nigeria’s domestic debt.
Further analysis showed that Nigerian Treasury Bills, the second-largest component, experienced a marginal decline, falling by 0.66 percent to N11.73 trillion from N11.81 trillion in the previous quarter.
The reduction aligns with efforts to moderate short-term debt instruments, likely in response to concerns over rollover risks and rising interest rates.
Promissory notes issued to settle government obligations such as contractor payments grew by 5.80 percent to N1.77 trillion in September from N1.67 trillion in June.
This includes a significant increase in foreign-denominated promissory notes, which rose from N1.18 trillion to N1.19 trillion, reflecting adjustments due to currency fluctuations.
FGN Sukuk, a key instrument for infrastructure funding, decreased by 9.14 per cent to N992.56 billion, down from N1.09 trillion.
Meanwhile, FGN Savings Bonds increased by 16.11 percent, rising to N64.09 billion from N55.20 billion, reflecting higher participation by retail investors.
The Green Bond component remained unchanged at N15 billion, maintaining its minimal contribution of 0.02 percent to the domestic debt stock.
The overall increase in domestic debt highlights the Federal Government’s growing dependence on local markets to finance budget deficits amid constrained foreign exchange reserves and limited external borrowing options.
While the bond market continues to dominate, the expansion in promissory notes and retail-focused savings bonds indicates a broadening of the domestic debt portfolio.
Experts raise the alarm
Interestingly, the International Monetary Fund, which initiated the drive for borrowing has warned the Nigerian government about the potential risks of the soaring debt portfolio.
This even as local experts have continued to raise the alarm over the country’s rising debt insisting that it may create macroeconomic challenges especially if the debt service burden continues to grow.
Speaking to the threat posed by the situation, Chief Economist and Partner at SPM Professionals, Paul Alaje said the country’s debt portfolio may cross N150 trillion in the first quarter of 2025.
“One of our seven macroeconomic indicators and other parameters projections for 2025 is that Nigeria’s debt profile will cross N150 trillion. Today, we expected this in Q2 but the report shows that this may happen in Q1 end,” he stated.
Expatiating on the economic implication, he stated that those arguing that Nigeria’s debt to GDP ratio are the best in Africa need to look beyond such theories.
“They will never tell you about the country’s revenue to GDP ratio being the worst on earth.
“Nigeria’s GDP grew by 3.46%. How do I explain that Nigeria lost 50% of its GDP? So are we growing at all? We moved from $400b to $200b as a result of naira devaluation,” he said rhetorically.
Similarly, the Chief Executive Officer of the Centre for the Promotion of Public Enterprises, Muda Yusuf, warned that Nigeria may end up in a vicious circle, with the possibility of the country ending up in a debt trap.
“I think there is a need for us to be very conscious of and watch the rate of growth of our public debt. Because it could create macro-economic challenges especially if the burden of debt service continues to grow,” he noted.
Warning on specifics, Yusuf advised that the government needs to reduce the exposure to foreign debts, stressing that the number has grown in recent times due to the exchange rate.
He noted that the modest decline in short-term instruments like treasury bills could mitigate refinancing risks, but the reliance on long-term bonds may increase the overall cost of debt servicing in the long term.
Taking a holistic view of the country’s borrowing situation even as it affects the 2025 budget proposal, a Professor of Capital Markets and Director of the Institute of Capital Market Studies at the Nasarawa State University Keffi, Professor Uche Uwaleke, said provision for N13.4 trillion deficit out of N49.7 trillion earmarked for the year is worrisome.
According to the budget proposal, out of the N13.4 trillion deficit proceeds from asset sale/privatization will contribute a mere N312 billion, while N3.8 trillion would be sourced through multilateral/bilateral project-tied loans.
Speaking on the implication, Uwaleke said the bulk of the borrowings, about N9.3 trillion, will be largely discretionary and non-project tied.
He therefore advised that, “In order not to compound the already huge debt burden the country is facing, every effort should be made to ensure that all long-term funds sourced from the debt capital market are tied to self-liquidating projects.”
Tougher days ahead
Unfortunately, there seems to be no relief in sight in the short term. For instance, the Central Bank of Nigeria latest report of the country’s foreign exchange reserves in the first three weeks of January indicates a substantial decrease plummeting by $832.62 million from January 6 to January 21.
The data published on the CBN official website underscores the ongoing challenges in Nigeria’s foreign exchange market as it indicates the sharpest fall in reserves since April 2024.
The decline raises fresh concerns over the nation’s external liquidity position amidst mounting economic pressures, hence further borrowing may be difficult to repay. More so, the depletion in reserves may further constrain the CBN’s ability to intervene in the foreign exchange market, potentially intensifying pressure on the naira.
Unimpressive local productivity
To further complicate things, the Manufacturers Association of Nigeria last week reported that it recorded more than N1.4 trillion unsold goods manufactured by her members in 2024, blaming it on high inflation and reduced purchasing power of consumers.
MAN’s President, Francis Meshioye, disclosed this in Lagos, at the 2025 presidential media luncheon organized by the association.
He stated that, “In 2024, Nigeria’s manufacturing sector encountered a myriad of macroeconomic and infrastructural challenges that severely impacted its performance. The sector faced mounting pressure from high inflation, a depreciating Naira, rising interest rates, escalating electricity tariffs, and record low sales, multiplicity of taxes and levies and militating security concerns. These factors collectively strained the sector’s profitability and curtailed its contribution to the nation’s gross domestic product (GDP).
“Inflation in Nigeria reached an alarming 34.6% by November 2024, diminishing consumers’ purchasing power and causing a decline in demand for manufactured goods.
“This inflationary burden also led to an accumulation of unsold inventory, which rose to N1.4 trillion across the manufacturing industries.”
The MAN president reeled out other challenges confronted by the sector in the year.
According to him, the floating of the exchange rate which resulted in a steep depreciation of the Naira led to inflated costs of imported raw materials and machinery, worsening the already strained profitability of manufacturers.
“My outlook for Nigeria this year is tepid, but with cautious optimism. Nigeria cannot grow with loans; you cannot develop with aids. We have all we need within Nigeria to unlock the type of prosperity the country needs”
“Interest rates reached unprecedented levels, climbing to 27.7% by November 2024. This increase substantially raised borrowing costs, making it harder for manufacturers to access financing for expansion and modernization. The rising interest rates, combined with inflation, severely limited the potential for investment in the sector, impeding long-term growth prospects.
“Additionally, manufacturers were hit hard with a drastic rise in electricity tariffs, with rates increasing by over 250%. This surge in energy costs became one of the highest operating expenses for businesses in the sector in 2024. As a result, many manufacturers sought alternative energy sources, further straining their financial resources and complicating their ability to remain competitive.
“Consequently, it cannot be far-fetched that the sector’s struggles were reflected in its decreasing contribution to Nigeria’s GDP.
“Manufacturing’s share of the economy dropped significantly from 16.04% in Q4 2023 to 12.68% in Q2 2024, indicating a contraction in economic activity within the sector. The combination of high operational costs, reduced consumer demand, and limited access to finance contributed majorly to this decline,” he added.
Way forward
Proffering solutions to the enormous crisis posed by the rising debt portfolio amidst unimpressive microeconomic index such dwindling foreign reserves, consumers purchasing power, rising inflation, interest rate, an economist and lecturer at the University of Abuja, Olanrewaju Aladeitan, called for a review of government policies with regards to economic productivity.
Citing the example of President Donald Trump of America, Olanrewaju noted that Trump’s recent pronouncements are indications of how he wants to make the American economy productive without borrowings.
“Our government must focus on creating a conducive environment for the private sector to invest rather than travelling around to seek for investors,” he said.
He warned that Nigeria may face a tougher day ahead as the Trump administration settles down, saying, “Trump tariffs will lead to inflation. He will continue to hike rates to tame inflation. This will mean that Nigeria will spend more to service its humongous dollar denominated foreign debt.
“My outlook for Nigeria this year is tepid, but with cautious optimism. Nigeria cannot grow with loans; you cannot develop with aids. We have all we need within Nigeria to unlock the type of prosperity the country needs,” he said.
He warned that without serious efforts to attract foreign direct investment of at least $50 billion in “actualized investment” deals which can help reduce the pressure on the naira the economy will continue to suffer while the trade above N1500 to the dollar.
Olarewaju is however optimistic that the Nigerian government can harness its huge diaspora potential to turnaround the ailing economy.
“Only diaspora Nigerians with ‘means’ (will believe in Nigeria enough) to drive the type of growth we need in Nigeria. The Chinese diaspora did it, Nigeria should not be different,” he stated.
