Nigeria’s Debt To GDP Ratio Crosses 50% For The First Time

Nigeria’s debt to GDP ratio crosses 50% for the first time

By Aisha Musa

Nigeria’s debt-to-GDP ratio crossed 50% for the first time ever last week after the Debt Management Office published the country’s latest public debt figures.

According to the DMO, Nigeria now has a public debt portfolio of N121 trillion, consisting of domestic debt of N65.6 trillion and a foreign debt portfolio of $42.1 billion (which converts to N56 trillion when converted to Naira).

As of December 2023, Nigeria’s total gross domestic product (GDP) was N229.9 trillion in nominal terms, though it grew by only 2.74% in real terms. This suggests that the country’s debt-to-GDP ratio is now above 50% for the first time.

Nigeria’s latest Debt to GDP

In the first quarter of 2024, Nigeria recorded a nominal GDP of N58.5 trillion, up from N51.2 trillion in the corresponding period in 2023.

However, in the second and third quarters of 2023, the nominal GDP figures were N52.1 trillion and N60.6 trillion, respectively.

The fourth quarter GDP rose to N65.9 trillion, making the trailing four-quarters GDP total N237.5 trillion.

Based on the 2023 GDP figure of N229.9 trillion, Nigeria’s debt-to-GDP ratio is 52.9%, marking the first time the country has reached such a high debt-to-GDP figure.

Using the trailing four-quarter GDP figure of N237.5 trillion, the country’s debt-to-GDP ratio also stands at 51.2%

Why this matters: Nigeria has often viewed its ‘low’ debt-to-GDP ratio as a sign of the country’s economic resilience, suggesting there was more room to expand its borrowing capacity.

For example, as of 2023, Ghana had a debt-to-GDP ratio of about 84.9%, while South Africa’s ratio stood at 72.2%. Kenya and Egypt had ratios of 70.1% and 95.8%, respectively.

While these countries have significantly higher debt-to-GDP ratios compared to Nigeria, the challenge has always been Nigeria’s ability to meet its debt service obligations due to its high debt service-to-revenue ratio.

Now, with Nigeria’s debt-to-GDP ratio surpassing 50% and continuing to rise, the country has limited room to further expand its borrowing capacity while grappling with current economic challenges.

Nigeria’s rising debt profile

Nigeria’s debt profile has risen over the last 8 years as the country faced a string of fiscal challenges brought about by low crude oil proceeds amid rising budgetary expenditure.

For example, under the Buhari administration, public debt rose from N12.6 trillion in 2015 to N97.3 trillion in 2023. Between December 2023 and March 2024, public debt in Naira terms have risen by as much as N24.3 trilion.

However, the Debt Management Office (DMO) explained the increase noting that the N24.33 trillion increase in the total debt was a result of a combination of fresh borrowing and naira devaluation.

The DMO further clarified that Nigeria’s fresh borrowing was N7.71 trillion in the first quarter of 2024.

The fresh borrowing includes N2.81 trillion as part of the new domestic borrowing of N6.06 trillion provided in the 2024 Appropriation Act and N4.90 trillion as part of the securitization of the N7.3 trillion Ways and Means Advances approved by the National Assembly.

Global ratings agency, Moody’s also stated that Nigeria’s interest spending on debt might consume up to 36% of the federal government’s revenue in 2024.

According to the firm, the hawkish monetary policy stance of the CBN has pushed interest rates for local borrowing by the federal government from an average of 12.8% in 2023 to around 19% in the first five months of 2024.