Nigeria’s fiscal challenges have intensified as the cost of servicing foreign debt has skyrocketed. Between January and August 2024, the nation spent a staggering N3.8 trillion on foreign debt servicing, a 107.7% increase compared to the initial budget projection of N1.83 trillion. This significant overshoot has put immense strain on the government’s finances.
The 2025-2027 Medium Term Expenditure Framework and Fiscal Strategy (MTEF & FSP) revealed that the actual foreign debt servicing expenditure exceeded the budget by a substantial N1.97 trillion. In contrast, domestic debt servicing, while still higher than projected, showed a more modest increase of 2%. The government allocated N3.53 trillion for domestic debt servicing, but the actual expenditure reached N3.6 trillion.
The overall debt servicing cost, encompassing domestic and foreign debt, sinking funds, and interest on FGN bonds for securitized ways and means, was budgeted at N7.41 trillion. However, the government has already disbursed N5.51 trillion, accounting for 34.4% of the total budget. This alarming figure underscores the growing burden of debt servicing on public finances.
While the government has achieved commendable progress in non-oil revenue, particularly in Corporate Income Tax (CIT) and Value Added Tax (VAT) collections, the underperformance of oil revenue has significantly impacted the overall fiscal picture. Oil revenue, projected at N20 trillion for 2024, has yielded only N9.83 trillion as of August. This shortfall, coupled with the rising cost of debt servicing, poses serious challenges to the government’s ability to fund essential public services and infrastructure projects.
The depreciation of the naira has further exacerbated the situation, as it increases the cost of servicing foreign debt denominated in foreign currencies. As a result, Nigeria’s debt-to-GDP ratio has surpassed 50%, raising concerns about the country’s long-term debt sustainability.
To address these pressing fiscal challenges, the government must implement comprehensive measures to boost revenue generation, reduce expenditure, and improve debt management. This may involve reforms in the oil and gas sector, tax administration, and public financial management. Additionally, exploring innovative financing options and seeking debt relief may be necessary to alleviate the burden of debt servicing.
The rising cost of debt servicing and the deteriorating fiscal position pose significant risks to Nigeria’s economic stability and social development. Urgent action is required to mitigate these challenges and ensure a sustainable fiscal path for the nation.
Credit: Nairametrics (Text Excluding Headline)
