Debt servicing consumed 47 per cent of the Federal Government’s total expenditure in the first nine months of 2024, The PUNCH reports.
An analysis of data from the Central Bank of Nigeria’s latest quarterly statistics bulletin highlights the growing burden of debt repayment obligations and its implications for Nigeria’s fiscal sustainability.
In the first nine months of 2024, the Federal Government spent N8.94tn on debt servicing, a sharp increase of 56.8 per cent from N5.69tn in the corresponding period of 2023.
The debt costs accounted for nearly half of the N18.97tn total expenditure for the period, compared to 42 per cent of the N13.57tn spent in 2023.
The rising debt servicing ratio reflects Nigeria’s increasing dependence on borrowing to fund its budgetary operations, particularly as fiscal deficits continue to widen.
The debt-to-revenue ratio further underlines the severity of the situation. In 2023, the Federal Government’s retained revenue of N4.32tn meant that debt servicing accounted for 132 per cent of revenue during the period.
This figure worsened in 2024, when debt servicing consumed 147 percent of the N6.08tn retained revenue.
This trend indicates that Nigeria is borrowing not just to finance its expenditure but also to service existing debts, a fiscal trajectory that raises serious concerns about sustainability.
Recurrent expenditures, which include personnel costs, pensions, transfers, and debt servicing, rose sharply by 45.6 per cent from N10.38tn in 2023 to N15.11tn in 2024.
Personnel costs increased by 20 per cent from N2.99tn to N3.59tn over the same period, reflecting the government’s continued commitment to maintaining public sector salaries despite fiscal challenges.
Overhead costs, including MYTO and service-wide votes, surged by 51.4 per cent from N589.63bn in 2023 to N892.85bn in 2024, while transfers more than doubled from N711.36bn to N1.31tn, representing an 83.8 per cent rise.
However, pensions and gratuities experienced a marginal decline, falling from N339.66bn in 2023 to N336.61bn in 2024.
Despite the government’s attempts to allocate more funds for infrastructural development, the increase in capital expenditure was relatively modest compared to recurrent spending.
Capital spending rose by 20.8 per cent from N3.19tn in 2023 to N3.86tn in 2024, a significant amount but still far overshadowed by the recurrent and debt servicing costs.
The disproportionate allocation of funds highlights how rising debt obligations continue to crowd out critical capital investments, further exacerbating Nigeria’s infrastructure deficit and limiting economic growth potential.
The fiscal deficit widened from N9.25tn in the first nine months of 2023 to N12.89tn during the same period in 2024, marking a 39.3 per cent increase.
This growing deficit highlights the persistent gap between government revenue and expenditure, compounded by escalating debt servicing costs.
With such a large share of revenue allocated to debt repayment, the government’s capacity to fund public services, infrastructure, and other developmental projects is increasingly constrained.
In his national broadcast to mark Nigeria’s 64th Independence Anniversary, President Bola Tinubu boasted that his administration reduced the debt service ratio from 97 per cent to 68 per cent.
Tinubu also said his administration is committed to stopping the vicious cycle of overreliance on borrowing for public spending and the resulting stress on managing scarce government resources caused by debt service.
He noted the country could not continue to service its debt with 90 per cent of its revenue, as this was a recipe for destruction.
However, CBN data shows that the ratio worsened to 147 per cent in the first nine months of 2024.
The global credit ratings agency, Fitch, earlier projected Nigeria’s external debt servicing to rise by $400m to $5.2bn in 2025.
Regarding external debt, the agency said external financing obligations through a combination of multilateral lending, syndicated loans, and potentially commercial borrowing would raise the servicing from $4.8bn in 2024 to $5.2bn in 2025.
This was despite the current administration’s insistence on focusing more on domestic borrowings from the capital market.
Analysts at Cowry Research earlier noted that there is no immediate relief for Nigeria’s debt levels and debt service costs.
“Financing costs are expected to continue consuming a larger portion of the Federal Government’s revenues, while the local currency remains weak against the dollar and the interest rate environment remains tight, reflecting the Central Bank’s monetary tightening measures,” they said.
Speaking earlier with The PUNCH, the President of the Nigerian Economic Society, Prof Adeola Adenikinju, said, “There is little we can do regarding our debt servicing. This is an obligation that we owe, and it will do a lot of damage to our image if we don’t pay. That is a consequence of past years of mismanagement and dependence on debt to run the government.”
He lamented that most of the time, the government does not meet up with the provisions for capital expenditure in the budget.
Adenikinju added, “Even when they say N48tn, you can be assured that they are not going to spend that.”
He noted that spending on debt servicing will not yield any positive benefit for the Nigerian economy.
“It is sad because debt service will not do anything positive for the economy. It is not going to improve infrastructure. It is not going to enhance economic growth. It is not going to yield any significant positive effect on the economy. We have been wasteful in the past, and that is the consequence we have to deal with now,” he said.
Also, the Chief Executive Officer of the CFG Advisory, Tilewa Adebajo, earlier said that Nigeria needed to commence debt negotiation talks with its creditors.
Adebajo noted that the country’s debt servicing now exceeded recurrent and capital expenditures, which put the country in a position where it used the majority of its revenue to service debt.
The PUNCH earlier reported that the International Monetary Fund said that Nigeria allocates the majority of its revenue to debt servicing, leaving limited funds for critical development projects.
Speaking during the Fiscal Monitor press briefing at the IMF/World Bank Annual Meetings in Washington DC, Davide Furceri, Division Chief of the IMF’s Fiscal Affairs Department, emphasised the need for Nigeria to adopt more effective revenue mobilisation strategies to ease this financial burden.
Furceri noted that Nigeria’s debt service-to-revenue ratio stands at around 60 per cent, significantly constraining the government’s ability to invest in social and economic programmes.
He stressed that the country must further reduce the share of its revenue allocated to debt repayments by focusing on broadening its tax base.
He said, “There is a need to grow the revenue-to-GDP ratio. For a country Like Nigeria, the Debt Service-to-Revenue is about 60 per cent. What that means is that a larger part of the revenue of the country goes into debt servicing. What we recommend for countries like Nigeria, if they can improve their revenue mobilisation, they will be able to reduce the portion of the revenue that goes into debt servicing.
“It is important to broaden the tax base in order to have more revenue and especially in Nigeria to put in place a system and mechanism that is transparent and efficient to assist the government in collecting more revenue.”
He called for the implementation of a transparent and efficient tax collection system, urging the government to improve its fiscal operations to generate more income.
The PUNCH recently reported that Tinubu called on world leaders to prioritise debt forgiveness for Nigeria and other developing countries from creditors and multilateral financial institutions.
The President also asked the United Nations to commit to multilateralism by deepening relations among member states, which aligns with the principles of inclusivity, equality, and cooperation.
This was during the General Debate of the 79th Session of the United Nations General Assembly at the UN headquarters in New York, United States.
Represented by Vice President Kashim Shettima at the high-level annual global event, the President said countries of the global South would not make meaningful economic progress without special concessions and a review of their current debt burden.