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“The Debt Management Office has reported that Nigeria’s total public debt reached N87.38 trillion by the end of the second quarter of 2023. This figure represents a substantial increase of 75.29%, equivalent to N37.53 trillion, compared to the N49.85 trillion recorded at the end of March 2023.

The reported debt includes the N22.71 trillion Ways and Means Advances provided by the Central Bank of Nigeria to the Federal Government. The DMO explained, ‘Nigeria’s total public debt stock as of June 30, 2023, was N87.38 trillion ($113.42 billion), encompassing both domestic and external debts of the Federal Government, the thirty-six states, and the Federal Capital Territory. The major addition to the Public Debt Stock was the inclusion of the N22.712 trillion securitized FGN’s Ways and Means Advances.’

Additional factors contributing to the debt stock were new borrowings by the Federal Government and sub-national entities from both local and external sources. The DMO indicated that ongoing reforms and recommendations from the Fiscal Reform and Tax Policies Committee are expected to impact debt strategy and enhance debt sustainability.

Previously, the DMO had projected that Nigeria’s public debt could reach N77 trillion after the National Assembly approved the restructuring of the CBN’s Ways and Means Advances. However, the latest data reveals that the actual debt stock of N87.38 trillion exceeded this projection by N10.38 trillion.

A detailed breakdown showed that Nigeria has a domestic debt of N54.13 trillion and an external debt of N33.25 trillion. Domestic debt constitutes 61.95% of the total debt, while external debt makes up 38.05%.

Significantly, both domestic and external debt increased substantially within just three months, with domestic debt rising by 79.18% from N30.21 trillion and external debt increasing by 69.28% from N19.64 trillion in Q1 2023.

The DMO had previously warned that the government’s projected revenue of N10 trillion for 2023 could not support additional borrowing, citing a high projected debt service-to-revenue ratio of 73.5% for 2023 as a threat to debt sustainability. The office emphasized the need to enhance revenue generation through initiatives and reforms to reduce reliance on borrowing.”

Ways and Means

“According to Adeola Adenikinju, a member of the Monetary Policy Committee, both government revenue and expenditure performed below expectations between January and May 2023. In his personal statement released by the Central Bank during the last MPC meeting, he noted that the Federal Government’s retained revenue amounted to N1.67 trillion, falling short of the pro-rata target of N1.97 trillion. This underperformance was primarily due to lower FAAC receipts and gross independent revenue.

Adenikinju further stated, ‘Similarly, total Federal Government expenditure as of May 2023 stood at N4.77 trillion, which is 27.8% lower than the budget estimate of N6.61 trillion. The shortfall was mainly attributed to allocations for debt service, interest on Ways and Means, and capital expenditure.’

However, he expressed optimism that the increase in FAAC disbursements over time would assist in managing the Federal Government’s reliance on debt to fund its activities. This, in turn, could lead to a reduction in Ways and Means financing and subsequently alleviate inflationary pressures from the monetary perspective.”

Naira devaluation

“Gabriel Idahosa, the Deputy-President of the Lagos Chamber of Commerce and Industry, attributed the significant increase in public debt in naira terms to the devaluation of the currency. He suggested that the new administration might have also inherited undisclosed debts, contributing to the total debt reaching N87 trillion by the second quarter of the year.

He explained, ‘The foreign exchange conversion alone would have pushed the debt from N37 trillion to approximately N64 trillion. This is due to the exchange rate shifting from around N460 to the current CBN rate of about N800, which is almost double. The key point here is that there appears to be a gap, and it shouldn’t have reached N87 trillion unless additional debt was incurred. It’s possible that some debts were not previously recorded until the new government began reviewing all the financial records.’

Sheriffdeen Tella, a professor of Economics at Olabisi Onabanjo University, also identified the devaluation of the naira as the primary factor contributing to the substantial increase in Nigeria’s total debt. He elaborated, ‘The naira depreciated significantly during the second quarter, and this depreciation was factored into the debt calculation. Additionally, domestic borrowing increased as the government borrowed from the central bank to settle subsidy-related debts. The government’s borrowing to cover subsidies was on the rise. When converted to dollars, the increase may not be as significant, but due to the depreciation of the naira, the multiplication effect resulted in a substantial increase in naira terms.'”

Revenue challenges

“Professor Jonathan Aremu, an economic expert and former Assistant Head of Research at the CBN, emphasized that the concern lies not in the act of borrowing itself but in the purpose behind it. He pointed out that borrowing can be beneficial when used to finance productive budget items that boost economic growth or fund infrastructure development. However, borrowing for non-productive purposes, such as domestic consumption, imposes a burden on future generations and is not sustainable.

Aremu expressed his worry that the current borrowing strategy seems to focus on sustaining the present population’s needs at the expense of future generations. He highlighted the nature of the money borrowed from the CBN through Ways and Means, which must be repaid within a year, making it a short-term fiscal tool. He stressed that it should not be the primary method used to burden future generations.

Furthermore, Aremu cautioned that the high level of debt could offset any gains made from subsidy removal and other sectors. He urged the government to address revenue challenges and work on sustainable economic growth.

MPC member Adeola Adenikinju echoed the importance of addressing revenue challenges and emphasized that debt becomes an issue when there is insufficient revenue to service it. He noted that recent government measures, such as fuel subsidy removal, efforts to address exchange rate issues, and the establishment of a tax reform committee, could contribute to expanding the revenue base.

Adenikinju also highlighted the need to manage the cost of governance and noted that the structure of Nigeria’s debt, with a significant portion owed to multilateral bodies and extended repayment periods, helps mitigate potential issues related to the debt burden. He added that having a substantial portion of debt in commercial loans would have posed more significant challenges.”