Concerns regarding Nigeria’s debt-to-GDP ratio have been raised by the prediction that the public debt stock would reach N130 trillion this year.
This information was disclosed in a report recently released in Abuja by the investment management firm Afrinvest, titled “Bank Recapitalisation, Catalyst for a $1tn Economy.”
The National Bureau of Statistics reports that Nigeria’s public debt stock, which includes both domestic and foreign debt, increased by 24.99 percent on a quarterly basis to N121.67 trillion in the first quarter of 2024 from N97.34 trillion in the fourth quarter of 2023.
According to Afrinvest’s estimates, by the end of 2024, the fiscal deficit, total stock of public debt, debt-to-GDP, and debt-servicing-to-revenue rate would surpass N13.0 trillion, N130 trillion, 55%, and 60%, respectively.
Nigeria’s public debt stock was N121.7 trillion as of Q1 2024, with N77.5 trillion (63.6%) in domestic debt and N44.2 trillion (36.4%) in external debt.
A total of N12.4 trillion in other domestic debt, N20.3 trillion in Treasury bills, and N44.8 trillion in Federal Government bonds make up the domestic debt.
N14.3 trillion from multilateral creditors, N10.9 trillion from bilateral creditors, and N19.0 trillion from commercial creditors make up the total amount of external debt.
The investment management firm in its analysis, also claimed the 2024 budget is based on ‘overly optimistic’ revenue forecasts, which could lead to a repeat of the historically unsatisfactory 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.
According to Afrinvest’s evaluation of the 2023 actual budget, there has been a persistent underperformance, with actual revenue surpassing the allocated amount by 7.6% to N11.9 trillion.
Nonetheless, overall spending increased by 31.8% to N18.8 trillion, resulting in a larger N46.9 trillion deficit.
“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 further stated that “the Federal Government’s expansive borrowing plan could rub off negatively on banks’ deposits, given the attractive yields on risk-free papers as compared to interest on banks’ deposit.”
It added, “We believe banks would continue to battle heightened risks of asset deterioration, partly induced by the consumption-tilted budgetary patterns.”
Afrinvest applauded the Central Bank of Nigeria’s decision to reduce the number of Bureau De Change operators, upheld the policy on the dissolution of the earlier numerous forex segments, and started selling forex on a periodic basis at a discounted cost to approved BDCs.
“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 warned that “what should have been a short-term pain from this policy action has become endemic, due to the weak forex reserve war chest to adequately meet up with market demand.”
In order to offer prolonged short-term respite, the paper suggested looking at alternate currency sources such bilateral loans, loans tied to natural resources, debt-for-nature swaps, and asset concessions.
“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.
