Financial experts have raised concerns over Nigeria’s growing debt burden, urging swift action to prevent further economic strain. This comes in response to a recent assessment by the International Monetary Fund (IMF), which classified Nigeria’s debt risk as moderate rather than high.
During her visit to Nigeria, IMF’s First Deputy Managing Director, Gita Gopinath, acknowledged the country’s debt situation but maintained that it remains within a manageable range. However, she cautioned against reckless borrowing, highlighting that 75% of Nigeria’s revenue is already allocated to debt servicing, leaving limited resources for social welfare and development.
Call for Structural Reforms
Gopinath emphasized the importance of boosting domestic revenue, improving tax collection, and eliminating fiscal inefficiencies to ensure long-term debt sustainability. She also advised that savings from fuel subsidy removal should be reinvested strategically rather than spent inefficiently.
Despite the IMF’s moderate risk assessment, analysts at Afrinvest, a leading investment firm, insist that Nigeria’s debt trajectory requires urgent intervention. In their latest macroeconomic report, they pointed out that the country’s total public debt reached N142.3 trillion by the third quarter of 2024, marking a record high. The surge was attributed to a growing budget deficit and the impact of naira depreciation on external debt.
Their analysis revealed that domestic debt rose by 3.3% in the third quarter to N73.4 trillion, accounting for 51.6% of the total debt stock. Meanwhile, external debt climbed by 9.2% to N68.9 trillion, reflecting an 80.2% increase due to currency depreciation.
Alarming Debt-to-GDP Ratio
According to Afrinvest, Nigeria’s debt-to-GDP ratio reached 52.8%, surpassing the 40% limit set under the 2020–2023 Medium-Term Debt Management Strategy and approaching the 55% threshold for developing nations. Experts warn that exceeding this benchmark could pose significant economic risks.
Speaking at a budget forum, Minister of Budget and Economic Planning, Atiku Bagudu, acknowledged the concerns but expressed optimism that ongoing economic reforms could ease Nigeria’s debt burden. He pointed to innovative financing strategies, including local bond issuances, as potential solutions.
Meanwhile, Jimi Ogbobine, head of Agusto Consulting, noted that the current administration’s big-spending approach has intensified worries about fiscal sustainability. He underscored the need for stricter budget discipline, referencing the Fiscal Responsibility Act, which recommends that Nigeria’s deficit should not exceed 3% of GDP.
The Path Forward
As Nigeria navigates its debt challenges, analysts agree that urgent fiscal reforms, enhanced revenue generation, and prudent spending are critical to ensuring long-term economic stability. While the IMF’s verdict offers some reassurance, financial experts insist that proactive measures are necessary to prevent the country from slipping into unsustainable debt levels.
