Growing external debt load jeopardises Nigeria’s economic forecasts

May 14, 2024 | Health | 0 comments

An analysis of Nigeria’s spending on foreign debt service in 2024 reveals concerning trends, indicating significant pressure on public finances and aligning with projections from reputable agencies.

Despite the President Bola Tinubu administration’s emphasis on domestic borrowings for developmental projects, global credit ratings agency Fitch predicts a rise in Nigeria’s external debt servicing by $400 million to $5.2 billion in 2024.

The Nigerian government’s efforts to curb overreliance on borrowing for public spending and manage scarce resources are evident. However, data from the Central Bank of Nigeria (CBN) indicates a steady increase in debt service payments between January and March 2024, totaling approximately $1.12 billion for foreign debt.

Monthly breakdowns demonstrate fluctuating yet consistently high expenditures, with January witnessing a significant outflow of $560.52 million, nearly five times higher than January 2023. Although February and March saw slight decreases, debt servicing remained substantial, burdening Nigeria’s fiscal position.

Notably, about 70 percent of total dollar outflows in Q1 2024 were directed towards servicing external debts, indicating a significant drain on financial resources compared to the previous year.

Amidst economic growth projections and Nigeria’s return to the Eurobond market, concerns over escalating debt service costs persist. The World Bank warns of a potential financial crisis in developing countries, emphasizing the urgency for coordinated actions to address record-level debt and soaring interest rates.

Despite increased borrowing, Nigeria faces fiscal constraints, highlighted by a high debt service-to-revenue ratio and projections of significant debt servicing expenditures in 2024.

Experts caution against excessive borrowing, citing potential inflationary pressures and adverse effects on credit costs and production. Without commensurate revenue growth, Nigeria risks surpassing a critical debt service ratio threshold, posing challenges to fiscal stability and economic growth.

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