A recently released report from Price Waters and Coopers (PwC) has raised concerns about Nigeria’s ability to manage its debt servicing in 2024 due to the inherent volatility in the forex market. The PwC Nigeria Economic Outlook for 2024 outlined seven key trends shaping the nation’s economy and highlighted potential obstacles related to public debt and fiscal deficits.
The report anticipates that public debt might remain high, fueled by an increased budget deficit and continued government spending on debt service obligations. The persistent challenge of managing substantial fiscal deficits could contribute to elevated public debt. The deficit to GDP ratio, which reached 123% in the first quarter of 2023, might escalate further if there is a drop in revenue.
Citing a World Bank warning, the report emphasized the need for essential fiscal reforms to avoid a surge in the debt service to GDP ratio, potentially reaching 160% by 2027. The current public debt stock of ₦87.9 trillion in Q3 2023 is expected to rise in 2024 due to a budgeted deficit of ₦9.18 trillion and proposed additional borrowing of ₦8.88 trillion.
Despite a seemingly low debt-to-GDP ratio of 37.1%, the report emphasized that the debt servicing to revenue ratio remains high at 124% as of H1 2023. The challenge in servicing external debt in 2024 is attributed to exchange rate volatility and the potential devaluation of the naira.
The report pointed out that the unification of the foreign exchange market by the Central Bank of Nigeria (CBN) in June 2023 led to an increase in the external debt stock of state governments by 42%. The naira’s nearly 100% loss in value since the CBN’s action poses a significant hurdle, requiring more naira to service external debt, currently standing at $41.5 billion as of Q3 2023.
As Nigeria grapples with these economic challenges, stakeholders will closely monitor developments in the forex market and fiscal policies to navigate the complexities of debt management in the coming year.