Naira depreciation pushes Nigeria’s debt up by N47trn in 1yr

From N87.4 trillion in September last year, Nigeria’s debt profile surged by about N47 trillion in one year, checks by Daily Trust have shown.

According to the Debt Management Office (DMO), the total public debt stock hit N87.91tln ($114.35bn) as of September 30, 2023.

The DMO said the amount represented the domestic and external debts of the federal government, the 36 states and the Federal Capital Territory (FCT).

The N87.91tln total debt stock represents a marginal increase of 0.61 per cent, when compared to the June figure of N87.38tln.

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However, the debt profile as of the end of the second quarter of 2024 rose to 134.3tln, increasing by N47tn or 54% in about a year.

While the debt profile for the third quarter of the year is yet to be revealed, Daily Trust reports that the increase was driven largely by naira devaluation.

Also, the current debt profile is 10.35% higher than the N121.7tln ($91.5 billion) recorded in the first quarter as announced by the DMO.

As of March 2024 when the DMO released the first quarter debt profile, the Central Bank of Nigeria (CBN) Official Exchange Rate of US$1 to N1,330.26 was used in converting external debt to naira.

As of November 1, the dollar exchanged for 1,666.72 according to the Nigerian Autonomous Foreign Exchange Market (NAFEM).

While domestic debt accounted for 53% of the total, amounting to N71.2tln ($48.4bn), external debt makes up 47%, equivalent to N63.1tln ($42.9bn).

Also the country’s debt-to-GDP ratio stands at over 50% amidst concerns from experts and stakeholders about the country’s fiscal stability.

Debt profile may hit N150tln by December – Alaje

Foremost Economist, Dr Paul Alaje said the debt profile is a cause for major concern, projecting that the debt stock may hit N150tln by December.

It would be recalled that Alaje of SPM Professionals had last year projected that the debt profile would exceed N100tln by December last year.

‘30% of the money not borrowed’

He acknowledged that more than 30 per cent of the money wasn’t borrowed but a creation of the country due the volume of foreign loans accessed by government.

But the debt profile, he stated, is a pointer to the bad state of the economy.

He said, “The surge in debt profile is a thermometer telling us that the economy is heated. The way you measure the temperature of a patient when it goes above 38, going to 39, 40 and above, then you raise an alarm, that is the way debt profile is.

“But you need to look at the root of this debt profile in Nigeria. Already, I projected that by December last year, the debt profile would go above N100tln and people thought it was not possible. Today we are seeing debt cross N130tln and by the end of this year, it would be above N150tln.

“Do you know that more than 30% of that money, we did not borrow? We created the debt for ourselves. We tied ourselves to the debt. Because of devaluation, all foreign loans that we borrowed at a certain exchange rate are now multiples of what we borrowed and consequently we have to pay it.”

According to him, it would get to a time when there would be so much pressure to increase taxes.

He said the debt service to revenue must not be more than 33% of the total revenue but it is now over 60% from 100%.

“Will you say we should continue to borrow when more than two-thirds of all your revenue is used to service debt. Government feels what we need to do is to increase revenue through taxes but we should understand that the economy is not stable at this time and economic activity is sluggish. If you do that you would create more crises within the system,” he added.

Professor of Economics at the Bayero University of Kano (BUK), Garba Sheka, expressed concerns over the mounting debt profile, projecting that next year’s budget would be with a deficit which would be covered by debt.

“The concern is the debt is mounting and we should also be concerned because the amount of money we are paying on debt has already surpassed the amount of money we are spending on capital projects,” he said.

While he cautioned against taking more loans, he said it would also not be an idea to raise taxes, saying this would further “aggravate” inflation.

“If you increase VAT, it will directly affect the cost of goods. If you are increasing company income tax, the companies are already battling with various challenges like electricity and no doubt companies would transfer the burden on consumers and there would be more and more serious inflation,” he warned.