Nigeria’s domestic debt spirals as borrowing spurt outstrips revenue

Nigeria’s domestic debt burden is poised to skyrocket by 134% to N51.96 trillion by the end of 2023, according to a sobering revelation from the Debt Management Office’s Director-General, Patience Oniha, on Tuesday.

This alarming trajectory is fueled by the government’s insatiable appetite for domestic borrowing, exemplified by the N7.04 trillion already raised in 2023 alone.

While speaking to CNBC Africa on the sidelines of the discussions for the establishment of the African Debt Managers Initiative Network spearheaded by the African Development Institute of the African Development Bank in Abuja, she disclosed that the Federal Government had raised N7.04tn as total new domestic borrowing in 2023.

Oniha said, “I am happy to say that in 2023, the new domestic borrowing was N7.04tn, and as we speak that has been raised in full. So, I don’t need to explain how we raised it, but it has been raised. When you compare it to the N3.5tn of last year. It tells you that the market has debt for us to raise money.”

Key Takeaways:

• 134% Surge: Domestic debt is expected to nearly double by year-end, exceeding N51 trillion.
• Borrowing Blitz: N7.04 trillion raised domestically in 2023 reflects an aggressive borrowing strategy.
• Sustainability concerns: Rising debt raises questions about future financial stability and economic growth.

Business Implications:

• Soaring debt service costs: Increased debt burden will likely lead to higher spending on interest payments, squeezing resources for critical services and infrastructure.
• Crowding-out effect: Heavy borrowing could restrict private sector access to credit, hindering economic activity and job creation.
• Investor jitters: Rising debt-to-GDP ratio and potential fiscal pressure may dampen investor confidence, impacting foreign capital inflows.

Analysis:

The rapid rise in domestic debt raises concerns about Nigeria’s long-term fiscal sustainability. While borrowing might provide a temporary solution to budgetary shortfalls, its long-term implications are worrisome. The increasing interest burden could constrain future fiscal space, limiting investments in vital areas like healthcare, education, and infrastructure. Additionally, high debt levels may crowd out private sector borrowing, hampering economic growth and job creation.

Nigeria’s escalating domestic debt presents a significant challenge to its economic prosperity. Implementing a sound fiscal strategy and diversifying revenue streams are paramount to navigate this challenging landscape and ensure sustainable economic growth. By proactively addressing the debt issue, policymakers can safeguard the nation’s financial stability and unlock its full economic potential.