EDITORIAL: Nigeria’s worrisome rising debt profile


Data from the Central Bank of Nigeria’s Weekly International Payments showed that the Federal Government spent $112.35m servicing external debt in January 2023.

Uba Group

The amount spent in January was 146.17 per cent higher than the $45.64m spent in December 2022.

This occurred as the Federal Government struggled to boost its revenue base despite its revenue generation efforts.

The Federation Account Allocation Committee shared N750.17bn among the three tiers of government in January 2023.

The figure represents a decrease of N240.02bn compared to the N990.19bn shared in December 2022.

In 2022, Nigeria spent $2.4bn to service its external debt, which was a slight increase from the $2.11bn spent in 2021.

Also, the Federal Government deducted over N78bn from allocations made to the states for external debt servicing.

This was according to data from the Federation Account Allocation Committee Disbursement reports published by the National Bureau of Statistics.

The deductions were made in 2022 from the allocations given to state governments from the Federation Account.

The Federation Account is currently being managed under a legal framework that allows funds to be shared under three major components: statutory allocation, Value Added Tax distribution and derivation principle.

Most hit state by the deductions was Lagos, with about N23.61bn deducted in 2022 for external debt servicing.

It was followed by Kaduna, with N10.25bn deducted, and Cross River with N7.56bn deducted.

The International Monetary Fund recently said that the Federal Government projected to spend 82 per cent of its revenue on interest payments in 2023.

According to the IMF, external debt (including that of the private sector) will rise to $121.6bn, with external reserves climbing to $37.5bn.

“While not all of our public debt has been incurred by this outgoing administration, we cannot totally absolve it of blame because instead of reducing our debt profile, it was escalated”

The projections showed an improvement in the share of the government’s revenue used as interest payment, with interest payment falling from 96.3 per cent in 2022 to 82 per cent in 2023.

It added that interest payment was 86.1 percent and 87.8 percent of the Federal Government’s revenue in 2020 and 2021, respectively.

Last week, the Director General of the Budget Office, Ben Akabueze, raised the alarm that Nigeria is fast exceeding its limited borrowing space due to its poor debt-to-revenue ratio, warning of looming trouble.

Akabueze made this known while addressing members-elect of the 10th National Assembly at their week-long induction ceremony on Wednesday, at the International Conference Centre, Abuja, where he noted that Nigeria’s debt profile was becoming unsustainable.


The Budget Office boss pointed out that while Nigeria remains healthy with its debt-to-GDP ratio, the country is not with its debt-to-revenue ratio.

It is worrisome that Nigeria’s external debt has continued to climb, despite shrinking revenues.

External loans have nearly quadrupled in the last five years, increasing from $25.7 billion at the end of 2018 to $46 billion at the end of 2022, with debt servicing consuming about 96.3% of Nigeria’s earnings according to the World Bank.

According to the Debt Management Office, Nigeria’s public debt stock stood at N46.25 trillion ($103.1 billion) as of December 31, 2022.

When the N22.7 trillion to be securitized is included, the total public debt will climb to N77.8 trillion.

Given the present economic realities, which we do not expect to improve in the short term, debt levels are expected to continue to soar.

Nigeria’s total debt stock rising to N77.8trn will take the country’s Debt to GDP ratio to 38.4%. This is close to the 40% benchmark contained in the medium-term debt management strategy paper and will likely reach that level in 2023 given that actual borrowing may likely exceed the planned figure.

We expect the country’s fiscal space to remain tight in the short to medium term. The revised government expenditure for 2023 was estimated at an all-time high of N21.8 trillion. Revenue projection of N10.5 trillion will likely underperform the estimate, however, we expect the continued economic recovery to support tax revenue. We forecast that the budget deficit will come in above the government’s deficit target of N11.3tn.
Recurrent spending will likely overshoot targets while capital spending will be lower than planned.

In our view, oil revenue will still fall short of target, but non-oil revenue will outperform budget estimates.

We expect increased borrowings on the domestic market either through additional bonds or Ways and Means to finance the larger shortfall. The fiscal deficit has surpassed the target by an average of 65% over the last five years due to ambitious revenue estimates and volatile crude oil prices.

According to Reuters, Nigeria’s total public debt is projected to rise to N77 trillion this year from N44 trillion as at September last year due to new borrowings.

This gives cause for alarm. We have returned to the pre-Obasanjo years when we had huge debts and spent a huge chunk of our income servicing those debts annually before we secured debt relief.

While not all of our public debt has been incurred by this outgoing administration, we cannot totally absolve it of blame because instead of reducing our debt profile, it was escalated.

In a country where 133 million people are multidimensionally poor, it is sad to note that a huge chunk of government revenue that could have been spent on infrastructure and the provision of social services to the poor and vulnerable, is spent on servicing debt.

Continuous borrowing will spell doom for generations unborn who will be saddled with huge debts that they cannot pay, and would be unable to service.

It would also destroy the nation’s credit worthiness in the international financial community which would make her unable to secure new loans, no matter how pressing her needs may be.

This could lead to social unrest especially when the government cannot pay wages and provide social services.

Nigeria should learn from Greece which is yet to heal from the economic crisis which began 14 years ago due to huge debts which she was unable to pay or service.

The incoming administration of Bola Tinubu has its work cut out for it.

There are four things it needs to do. One, it should involve more of the private sector in the building of infrastructure instead of using loans. This can be done through build-operate-transfer, public-private partnership and tax credits.

Two, we need to put a total stop to subsidy payments for petroleum products.

Three, we need to reduce the bureaucracy by eliminating multiple government agencies who perform the same functions.

Lastly, the collection of Value Added Tax should be the exclusive preserve of sub-national governments. This would reduce our overall debt burden as state governments are significant contributors to our total public debt.