The Debt Management Office (DMO) reports that the federal government’s domestic debt stock by instrument reached N66.957 trillion by the first half of 2024, marking an 8.74% increase from N61.578 trillion at the end of Q1.
The government incurred N5.379 trillion in additional debt locally during Q2 2024 through financial instruments such as FGN Bonds, Nigerian Treasury Bills (NTB), FGN Savings Bonds, and Promissory Notes, facilitated by the DMO and the Central Bank of Nigeria (CBN).
As of Q1 2024, FG’s total domestic debt stood at N61.578 trillion, reflecting a 15.62% increase from N53.258 trillion recorded at the end of December 2023.
This indicates that the government incurred N8.32 trillion in additional debt within the first three months of the year, highlighting a more aggressive borrowing pattern in Q1 compared to Q2 2024.
The debt stock has risen significantly due to the government’s urgent need to finance the economy, driven by a substantial budget deficit forecast of N9.1 trillion at the beginning of the year, equivalent to approximately 3.8% of GDP.
The deficit has since exceeded initial projections, with a supplementary budget of N6.2 trillion introduced later in the year.
Additionally, the increase in debt stock has been influenced by the Central Bank of Nigeria’s (CBN) strategy to curb inflation by reducing excess money in circulation.
To achieve this, the CBN has continuously raised the monetary policy rate, providing an incentive for investors to purchase government securities, which are considered risk-free and offer tax-exempt returns.
Nigeria’s money supply (M3) grew by 56.32% year-on-year (YoY), reaching N101.461 trillion in June 2024, up from N64.906 trillion in June 2023.
By the end of September 2024, the money supply had further increased to N108.954 trillion.
The potential downside of CBN’s monetary policy tightening is the substantial increase in the cost of servicing these borrowings.