NIGERIA is sinking deeper into another debt trap. This is after the country’s debt-to-GDP ratio recently crossed the 50 per cent threshold for the first time since 1991. The Bola Tinubu administration inherited a debt-to-GDP ratio of 38 per cent.
But fresh borrowings, securitisation of the Ways and Means advances, a failure to tackle fiscal challenges such as low crude output amid soaring government expenditure, and a sluggish GDP growth rate have pushed the ratio to 52.9 per cent. This is significantly above the prudential debt ceiling of 40 per cent prescribed by the International Monetary Fund for developing countries.
The current figures raise the question of debt sustainability in a country that has allocated 30 per cent of the 2024 budget to debt servicing. The latest figures by the Debt Management Office show a public debt portfolio of N121 trillion comprised of a domestic debt of N65.6 trillion and a foreign debt portfolio of $42.
1 billion or N56 trillion. Nigeria’s finance managers have usually prided themselves on maintaining a relatively low debt-to-GDP ratio compared with its African peers. As of 2023, Ghana had a debt-to-GDP ratio of 84.
9 per cent, South Africa 72.2 per cent, Kenya 70.1 per cent, and Egypt 95.
8 per cent. The rising debt-to-GDP ratio is bound to severely constrain Nigeria’s ability to expand the borrowing needed to fund the budget deficit. Huge increases in debt service obligations worsen this.
Nigeria spent N7.8 trillion to service its debt.
