As President Bola Tinubu prepares to present the 2025 national budget to the National Assembly, concerns about Nigeria’s rising debt stock continue to escalate. The Federal Government (FG) has exceeded its domestic borrowing target for 2024 by N4 trillion, a staggering 67% above the budgeted amount. This development raises alarms over the sustainability of the nation’s fiscal policy and its reliance on debt financing.
A Sharp Rise in Domestic Borrowing
Data from the Debt Management Office (DMO) and the Central Bank of Nigeria (CBN) reveal that the FG borrowed N8.93 trillion from domestic investors between January and November 2024, 49% higher than the N6 trillion target for the entire year. This trend indicates that total domestic borrowing for the year could reach N10 trillion, exceeding projections by 67%.
The borrowing frenzy comes as the FG plans to finance the 2025 budget deficit with domestic and external borrowings amounting to N9.22 trillion, an 18% increase from the N7.808 trillion deficit budgeted for 2024.
According to the Federal Ministry of Budget and Economic Planning, the 2025 deficit will be funded through domestic borrowings, foreign loans, privatization proceeds, and drawdowns on existing multilateral and bilateral loans. Specifically, the deficit is expected to be covered by N9.22 trillion in borrowings, N312.33 billion from privatization proceeds, and N3.55 trillion from existing loan facilities.
Breakdown of Borrowing Activities in 2024
The government’s borrowing spree in 2024 has been driven by high-yield securities, including Nigeria Treasury Bills (NTBs), Federal Government of Nigeria (FGN) Bonds, and Savings Bonds.
- Third Quarter Borrowings (Q3 2024): The FG borrowed N2.134 trillion through NTBs, FGN Bonds, and Savings Bonds. Of this amount, N1.181 trillion came from NTBs, N939.246 billion from FGN Bonds, and N14 billion from Savings Bonds.
- October and November Borrowings: The FG raised N774.953 billion via NTBs, N635.752 billion through FGN Bonds, and N7.152 billion through Savings Bonds.
This brings the FG’s domestic debt stock for the first half of 2024 (H1 2024) to N66.957 trillion, a 38.6% increase from N48.314 trillion in the first half of 2023 (H1 2023).
The rise in debt instruments is reflected in NTBs, which increased from N4.7 trillion in H1 2023 to N11.8 trillion in H1 2024, accounting for 17.64% of total borrowing. Similarly, FGN Bonds rose from N41.722 trillion to N52.315 trillion during the same period, constituting 78.13% of total domestic borrowing. Sukuk Bonds and Savings Bonds also recorded significant increases.
High Interest Rates Fuel Borrowing Surge
Economic analysts attribute the 49% excess domestic borrowing to investors’ appetite for high yields, spurred by the Central Bank of Nigeria’s (CBN) aggressive monetary policy. The Monetary Policy Rate (MPR) was raised from 18.75% in February 2024 to 27.5% in November 2024.
As a result, the interest rate on 364-day NTBs surged to 22.93% in November, up from 12% at the start of the year. Similarly, the average interest rate on two-year FGN Savings Bonds rose to 17.483% in December 2024 from 12.287% in December 2023.
Economic Implications of Borrowing
Experts warn that the government’s borrowing spree has far-reaching consequences for Nigeria’s economy:
- Crowding Out Effect: Increased public sector borrowing has made it more expensive for private businesses to access credit, leading to reduced private sector investment.
- Inflationary Pressures: High borrowing rates have pushed up lending costs, forcing businesses to raise prices and exacerbating inflation.
- Currency Devaluation: Rising government spending and debt service costs have created pressure on the Naira, increasing the demand for foreign currency.
- Debt Sustainability Risks: Analysts caution that Nigeria’s growing debt stock could lead to a sovereign default if borrowing is not curtailed or revenue generation improved.
Expert Opinions on Debt Management
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), emphasized the need for moderation in borrowing to avoid overheating the economy. He noted that while bond-based borrowing is less inflationary than money printing, the rising debt stock poses a risk of crowding out private sector credit.
Victor Chiazor, Head of Research at FSL Securities Limited, highlighted the inflationary and exchange rate implications of government borrowing, while calling for fiscal policies that promote production and economic growth.
David Adonri, Executive Vice Chairman of Highcap Securities Limited, criticized the FG’s reliance on new debt to service existing obligations. He described the situation as a “debt trap,” which could hinder economic development and lead to a sovereign default.
The Path Forward
As Nigeria faces a mounting debt burden, experts agree on the need for a more sustainable approach to fiscal policy. This includes prioritizing infrastructure investments and project-tied loans over borrowing for recurrent expenditures.
While borrowing is a natural aspect of public finance, its impact on debt-to-GDP and debt-to-revenue ratios must be carefully managed. For Nigeria to achieve fiscal stability, the government must focus on boosting productivity, increasing revenue generation, and ensuring that borrowed funds are effectively utilized to drive economic growth.
As the nation awaits the unveiling of the 2025 budget, the FG’s borrowing trajectory underscores the urgent need for reforms to balance fiscal discipline with economic development.
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