Borrowing spree, debt service cost expose Nigeria’s precarious financial situation

NIGERIA’S Senate, last week, approved the sums of $1.5 billion and €995 million as external loans for the federal and state governments to fund critical infrastructure and boost agriculture across the country.

However, this recent loan acquisition adds to Nigeria’s growing burden of indebtedness as the nation’s spending in recent years continues to balloon, anchored by borrowing both from the domestic and international markets.

President Muhammadu Buhari at a virtual meeting with members of the Presidential Economic Advisory Council (PEAC) in 2020 said government’s borrowing through loans was in the interest of the country if it was to solve the dire shortfall in infrastructure.

“We have so many challenges with infrastructure. We just have to take loans to do roads, rail and power, so that investors will find us attractive and come here to put their money,’’ he said.

The amounts spent to service Nigeria’s debts are sometimes more than half of principal debts, leaving little to build the needed infrastructure to grow the economy.

In 2018, Nigeria spent N2.2 trillion on servicing outstanding loans compared to N1.68 trillion that was spent on infrastructure, according to data from the Central Bank of Nigeria, CBN. In the commercial category, debt service cost (external) was 52 per cent in 2020, according to the Debt Management Office (DMO). Debt service- to revenue in the first quarter of 2020 was 99 per cent, according to a Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP) report done by the Finance Ministry.  Subsequent numbers were less than 99 per cent, but above 50 per cent. 

Costly Debts

Data obtained from the DMO reveal that Nigeria’s total debt was N32.9 trillion at the end of December 2020, while debts owed to non-Nigerian lenders was pegged at N12.7 trillion.

A breakdown of Nigeria’s current debt history shows that the Federal Government owes N10.8 trillion as foreign debt and N10 trillion in domestic debt, while the states and the FCT owe N1.8 trillion as foreign debt and N4.1 trillion as domestic debt.

With the recent loan acquisitions, Nigeria’s total public debt is estimated at N33.9 trillion which puts more pressure on the nation’s revenue due to increased costs from servicing these new debts.

The total public debt incurred currently by Nigeria increased by 18 per cent when compared to the N27.4 trillion recorded as of 31 December 2019.

Despite exiting its second recession in four years, Nigeria’s plan to boost infrastructure investments to stimulate economic growth would cost $3 trillion over 30 years to close the deficit, according to a report by Moody’s Investors Service.  But the country does not have the money at the moment.


In the 2021 budget, debt service is projected to take N3.12 trillion, which is slightly less than the N3.58 trillion planned for infrastructure development.

The World Bank is Nigeria’s top creditor with $10.1 billion in loans, followed closely by Beijing-based Export-Import Bank of China with loans at $3.2 billion and Eurobonds account for $10.86 billion of loans to Nigeria.

Nigeria’s total debt in proportion to its Gross Domestic Product, GDP was 21 per cent at the end of 2020, which is a bit fair when compared to Africa’s second largest economy South Africa at 65 per cent at the same period.

The debt-to-GDP ratio compares what a country owes its lenders with what it produces in a given year, indicating a country’s ability to pay back its debt.

According to projections by the International Monetary Fund (IMF), Nigeria’s debt rate could rise to almost 36 per cent of its GDP by 2024 and interest payments could make up 74.6 per cent of its revenue without major reforms.

New Addiction to Money Printing

In February, Nigeria lifted the ceiling on the amount it was allowed to borrow as a proportion of its GDP to 40 per cent, from an initial 25 per cent as part of its new debt management strategy.

The higher limit was intended to facilitate borrowing to fund the budget deficit and other government obligations, which also included lending from the CBN.

Since 2015, the CBN’s financing of the fiscal budget has increased and led to copious money printing that has raised concerns about the health of the economy.

According to data obtained from the Budget Office, the CBN financed Nigeria’s budget with N1.2 trillion in 2015, N1.9 trillion in 2016, N1.3 trillion in 2017, N1.9 trillion in 2018, N3.3 trillion in 2019 and N2.9 trillion in 2020 respectively.

The CBN plans to convert those monies to loans which would increase debt service costs that already consume almost one – thirds of the nation’s actual revenue.

The International Monetary Fund (IMF) and the World Bank say such undermines the confidence of investors and hinders investment. High debt service  contributed to hyperinflation across Africa in the 1980s and 1990s, analysts say, warning Nigeria not to continue on the path.

Nigeria is not earning enough revenue, according to the IMF, which insists that Africa’s most populous nation does not have a debt problem but revenue challenge.

The Federal Government printed N60 billion to augment federal allocation in March, according to Governor Godwin Obaseki of Edo State. Though oil price is nearly $70 per barrel, the Federal Government spends N120 billion monthly on subsidy, which has been exposed as a waste and scam.



    Analysts say Nigeria will not reap the gains of rising oil price due to wastes in the oil industry, including losses incurred by unproductive refineries.

    Poverty is rising in Nigeria, with over 87 million people in extreme poverty. Unemployment reached 33 per cent in the last quarter of 2020, as inflation continues to soar – signalling an economy in precarious situation.

    The IMF warned Nigeria in July 2020 not to raise taxes as doing so would throw more citizens into poverty.

    “We do not think it is the right time to raise taxes due to the impact of the pandemic,”  IMF Mission Chief for Nigeria Jesmin Rahman said in a virtual fireside chat organised by Citi and American Business Council (ABC) in 2020.

    Amos Abba is a journalist with the International Center for Investigative Reporting, ICIR, who believes that courageous investigative reporting is the key to social justice and accountability in the society.

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