Despite the bloated recurrent spending in the 2024 budget and a significant infrastructure gap, Nigeria’s debt repayment now exceeds both recurrent and capital expenditure. This situation has been compounded by the country’s Foreign Direct Investment (FDI) reaching an all-time low of under US$1 billion.
Mr. Tilewa Adebajo, Chief Executive Officer (CEO) of The CFG Advisory, highlighted these issues while discussing “Nigeria’s Fiscal Environment in an Era of Monetary Policy Tightening” at the July 2024 Finance Correspondents Association of Nigeria (FICAN) bi-monthly forum in Lagos.
Although N8.7 trillion was allocated for capital expenditure in the 2024 budget, infrastructure development will receive just N1.32 trillion. According to Adebajo, Nigeria’s current debt burden of US$130 billion is being serviced by 95 percent of revenues, surpassing both recurrent and capital expenditure.
Nigeria’s public debt stock surged from N97.34 trillion in December 2023 to N121.67 trillion in March 2024, per the Debt Management Office (DMO). Adebajo warned, “Nigeria’s debt levels are now clearly unsustainable. Add to this US$10 billion from the 2024 budget deficit, and the question begs: is Nigeria heading for the default direction of Ghana, Zambia, and Ethiopia? The discussion on restructuring both domestic and external debt must commence alongside the ongoing economic reforms and revenue drive to avoid Paris and London Club imposition.”
Despite these challenges, Nigeria is poised to become the third-largest economy in Africa, trailing South Africa and Egypt. However, the economy remains in stagflation, with ongoing reforms aiming to achieve a sustainable growth trajectory. The introduction of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the removal of fuel subsidies have boosted the FAAC account by 130 percent from May to November 2023 to over N1 trillion.
“FDI is at an all-time low of under US$1 billion; power transmission and distribution infrastructure are still very poor, impacting industry and economic growth. The macroeconomic situation has declined over the last seven years with a loss of US$180-200 billion in GDP, currently at US$390 billion. GDP growth of 3 percent is not sustainable for our population of 200 million; Nigeria requires 8-10 percent GDP growth for sustainability; 135 million Nigerians are in the poverty trap, with 40 percent unemployment and very low job creation and industrial productivity. Dwindling reserves and increasing credit default swap premiums have resulted in Caa1 junk bond rating status for our international credit ratings,” Adebajo detailed.
While the fundamentals of the Nigerian economy remain sound, poor economic leadership in the past has stunted potential growth. However, with a new and highly rated economic management team, expectations are high. The success or failure of business projections and the economy will depend on their commitment to implement and deliver on reform policies. The goal is to drive the economy out of stagflation and achieve sustainable GDP growth targets.
Adebajo proposed several solutions to Nigeria’s economic challenges, including negotiating with creditors to restructure and extend debt maturities, implementing fiscal discipline, expanding the tax base, and improving tax collection. He also emphasized the need to enhance transparency and accountability in government spending, maintain positive real interest rates, and collaborate with regional and international organizations.
“Nigeria should negotiate with creditors to restructure and extend the maturities of debt, allowing for more manageable repayments and reduced interest rates. Implement fiscal discipline by reducing non-essential government spending, eliminating wasteful subsidies
