Nigeria: Concerns Mount Over Nigeria’s Rising Debt, Posing Challenges to CBN Policy

Concerns Mount Over Nigeria's Rising Debt, Posing Challenges to CBN Policy
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As Nigeria’s public debt continues to surge, financial analysts and public affairs experts are increasingly alarmed by the potential ramifications, fearing that the country’s debt service ratio could become unsustainable, while heightened borrowing threatens to squeeze out private sector funding.

According to the latest report from the National Bureau of Statistics (NBS), Nigeria’s total public debt stock climbed by 10.73 percent quarter-on-quarter (QoQ) to N97.34 trillion in the fourth quarter of 2023 (Q4’23), up from N87.91 trillion in the third quarter of 2023 (Q3’23). This represents a year-on-year (YoY) increase of 10.46 percent over the N46.25 trillion recorded in the corresponding period of 2022 (Q4’22).

David Adonri, Analyst/Executive Vice Chairman at Highcap Securities Limited, expressed concern over the relentless pace of public borrowing, which he believes contradicts expert advice. He cautioned that the escalating borrowing trend, coupled with a contractionary monetary policy pursued by the Central Bank of Nigeria (CBN) to curb inflation, could lead to a situation where the debt service ratio surpasses 100%. Adonri emphasized that excessive public borrowing is driving up the cost of credit and diverting funds away from productive sectors, warning of the inherent risks associated with heavy reliance on external borrowing.

Clifford Egbomeade, Communications/Economic Analyst, echoed similar apprehensions, highlighting the potential economic implications of Nigeria’s ballooning public debt. He raised concerns about debt sustainability, particularly if borrowed funds are not effectively utilized to stimulate economic growth. Egbomeade also emphasized the adverse effects of a higher debt burden on critical sectors such as infrastructure, healthcare, and education, cautioning against the inflationary impact of increased government borrowing from domestic sources.

Regarding the debate on the merits of external versus internal borrowing to bolster foreign exchange reserves, Egbomeade emphasized the need for a balanced approach that considers both options while prioritizing prudent debt management practices. He underscored the importance of investing borrowed funds in productive sectors to generate returns that can service the debt and foster sustainable economic growth. Additionally, Egbomeade called for intensified efforts to enhance revenue generation, fiscal discipline, and targeted investments aimed at promoting inclusive economic development and poverty reduction.

As Nigeria grapples with the challenges posed by its rising debt profile, stakeholders emphasize the imperative of adopting comprehensive strategies to mitigate risks, ensure responsible borrowing, and maximize the impact of investments in driving long-term prosperity and resilience.

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