1 month ago
24 ARTICLE AD
Nigeria’s debt servicing expenses reached N6.04tn in the first half of 2024, marking a sharp increase of 68.8 per cent from the N3.58tn recorded during the same period in 2023, the latest data from the Central Bank of Nigeria showed.
This implies that the amount spent by the Federal Government in servicing debt during the review period is about three times what it spent on personnel costs.
This sharp rise in debt service obligations, likely driven by naira devaluation for foreign debt repayments, reflects the growing burden on the Federal Government as debt repayment consumes a significant portion of its financial resources.
In contrast, personnel costs totalled N2.32tn in H1 2024, a 17.6 per cent rise from N1.97tn spent in H1 2023.
This expenditure pattern indicates that debt servicing is now almost triple the government’s wage bill, raising concerns about the sustainability of the country’s debt profile and the increasing pressure on public finances.
Despite the rising cost of living in the country, the total amount spent on salaries in the first six months of 2024 only increased marginally.
The PUNCH observed that in H1 2024, about half of the Federal Government’s total expenditures were on debt servicing.
Overall government spending surged to N12.17tn in H1 2024, up from N9.39tn in H1 2023, representing a 29.6 per cent increase.
This jump in total expenditure has further widened the fiscal deficit, which expanded by 27.9 per cent from N6.6tn in H1 2023 to N8.44tn in H1 2024.
This growing deficit highlights the federal government’s struggle to balance its revenue and expenditure, a situation exacerbated by ballooning debt obligations.
The persistent growth in the fiscal deficit suggests that Nigeria’s current fiscal trajectory may be unsustainable, particularly given its increasing reliance on debt financing to cover revenue shortfalls.
Recurrent expenditure, which encompasses operational costs such as debt servicing and personnel payments, surged by 51.4 per cent, from N6.72tn in H1 2023 to N10.17tn in H1 2024.
The increase in debt servicing, which now constitutes a large portion of recurrent expenditure, continues to strain the government’s budget.
Recurrent expenditure alone far exceeded total revenue in H1 2024, reaching over 270 per cent of retained revenue, which illustrates the extent of the fiscal pressure the government faces.
Despite the rise in overall spending, capital expenditure, which is crucial for infrastructure development and long-term economic growth, declined by 25.3 per cent from N2.68tn in H1 2023 to N1.99tn in H1 2024.
The decreased capital spending reflects the government’s constrained financial capacity, as more resources are directed towards servicing debt and recurrent costs.
This reduction in capital expenditure has sparked concerns that key projects in sectors such as transportation, education, and healthcare could be delayed or underfunded, potentially hampering the country’s development agenda.
The Federal Government’s retained revenue improved in H1 2024, increasing by 33.3 per cent from N2.8tn in H1 2023 to N3.73tn.
However, this revenue growth was overshadowed by the larger rise in total expenditure, particularly debt servicing.
While the increase in revenue is a positive development, it is insufficient to bridge the widening fiscal gap, given the scale of the government’s rising obligations.
The PUNCH further observed that the Federal Government spent about 162 per cent of its retained revenue on debt servicing in the first half of 2024.
The percentage recorded in the first six months of 2024 represents a significant increase from the 128 per cent recorded in the corresponding period of 2023, raising concerns about the sustainability of the country’s fiscal framework.
A closer look at the monthly breakdown shows an escalating trend. In January 2024, the Federal Government’s retained revenue was N449.7bn, while debt servicing amounted to N755.9bn, translating to 168% of revenue.
The trend continued across the months, with the most significant spike recorded in May 2024, when debt servicing reached N2.26tn compared to N523.8bn in May 2023. This represents a 332 per cent increase in debt servicing for that month alone.
By June 2024, retained revenue had increased to N731.8bn, while debt servicing stood at N689bn, marking the lowest debt service-to-revenue ratio of 94 per cent for the first half of the year.
In contrast, the situation was somewhat better in June 2023, when debt service accounted for only 68 per cent of revenue.
The surge in debt servicing highlights Nigeria’s growing debt burden. With more than its entire income for the first half of the year spent on debt repayments, the government is left with fewer funds for critical sectors like infrastructure, education, and healthcare.
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.
However, the CBN data shows that the ratio has worsened to 162 per cent in the first six months of 2024.
Last year, Tinubu said the country could not continue to service its debt with 90 per cent of its revenue, as this was a recipe for destruction.
He said this during the Annual Conference of the Nigerian Bar Association in Abuja.
According to the Debt Management Office in its Q1 2024 report, Nigeria’s domestic and external debts stood at N121.67tn ($91.46bn).
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.
“Given the government’s activities in the domestic capital market so far in 2024, it is anticipated that approximately N3tn will be raised from subsequent FGN Bond issuances. This is part of an effort to meet its funding target of N6.06tn in domestic borrowing and N1.77tn in foreign borrowings, as outlined in the N28.77tn 2024 budget,” they 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 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.
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.
