The International Monetary Fund (IMF) recently disclosed that Nigeria’s continued borrowing amidst steep debt costs signals a critical economic vulnerability, with the country nearing a tipping point. During the IMF/World Bank meetings in Washington, DC, IMF’s Financial Counsellor Tobias Adrian highlighted that Nigeria, along with other frontier markets, has been actively participating in the debt market despite escalating financing costs since pre-2021 levels.
“Frontier markets, including Nigeria, have maintained significant debt market activity this year, even as access to financing has grown more expensive,” Adrian said. This persistent borrowing comes as Nigeria’s total public debt has skyrocketed, reaching an alarming N121.67 trillion by March 2024, an increase of N24.3 trillion in just three months. Meanwhile, Nigeria’s Debt Management Office reported that domestic debt rose to N65.65 trillion and external debt to N56.02 trillion.
While the IMF praised Nigeria’s recent monetary policies—particularly the Central Bank’s interest rate hikes and foreign exchange reforms—it expressed a cautious outlook, noting the nation’s sluggish growth. The latest World Economic Outlook anticipates a 2.9% growth rate for Nigeria in 2024, mirroring 2023’s pace, a projection hampered by “weaker-than-expected” economic activity in early 2024. The IMF remains critical of policies like fuel subsidy removal, which has increased economic strain.
Revenue Crisis and High Debt Servicing
Nigeria faces a revenue crisis, worsened by high debt servicing costs. The Central Bank of Nigeria reported $2.78 billion spent on debt servicing within the first seven months of 2024. Additionally, over half of the country’s oil—sold at an average of $80 per barrel—is committed to repaying loans, leaving little room for other revenue sources.
The IMF stressed that current borrowing, largely allocated toward consumption rather than productive sectors, is unsustainable. Nigeria’s debt-financed spending on consumption leaves limited funds for investments in critical infrastructure or economic development.
Path Forward: Non-Oil Sector Growth and Asset Privatization
Experts suggest that Nigeria’s economic recovery requires a significant shift. Key recommendations include:
- Asset Privatization: Selling state-owned assets could generate substantial revenue, easing the strain on borrowing.
- Expanding the Non-Oil Sector: Lower interest rates could reduce borrowing costs for businesses, stimulating non-oil sector growth and reducing Nigeria’s dependency on oil revenues.
- Cutting Consumption-Focused Borrowing: Loans should be directed toward productive sectors, enhancing economic stability and reducing debt reliance.
For Nigeria to achieve sustainable growth, the government must focus on alternative revenue sources and reduce its debt dependency, especially for non-productive expenditures. As the IMF’s cautious stance suggests, the time for creative, proactive fiscal policies in Nigeria is now.
