Nigeria’s debt profile needs immediate action, analysts counter IMF

Experts at investment house Afrinvest have asserted that Nigeria’s debt profile requires immediate action to forestall further deterioration.

 

This was stated in their latest macroeconomic update titled ‘Nigeria’s Debt Statistics… High Risk or Not?’ which dwelt on the outcome of the recent country visit of IMF’s First Deputy Managing Director, Gita Gopinath.

 

During the visit, Gopinath described Nigeria’s debt level as moderate rather than high risk, offering a somewhat optimistic assessment of the country’s fiscal position.

 

On Nigeria’s debt sustainability, Gopinath said, “We (IMF) assess debt sustainability for countries every year, and we did this for Nigeria in our report for 2024. Our assessment was that the risk of sovereign stress for Nigeria is moderate and not high risk.”

 

She, however, warned that the IMF’s verdict was not a license for the country to take on more debt, saying, “No, I will not go that path. The point is that you want to stay moderate, and you don’t want to move into a high-risk debt level. I just want to highlight the fact that while the country’s sovereign debt is said to be moderate, we are living in a world with a lot of shocks and a large amount of uncertainty.

 

“And if you look at the interest payment as a share of revenues, 75 per cent of revenues go into interest payment. That means there is hardly any money for social support or development spending. Therefore, to make sure that debt stays at a manageable level, it is also important to do more domestic revenue mobilisation.”

 

Gopinath also emphasised that savings from fuel subsidy removal should be redirected into government reserves rather than spent inefficiently.

 

Overall, the IMF Deputy Director stressed the need for Nigeria to optimise its revenue streams by strengthening tax collection, curbing leakages, and ensuring fiscal discipline.

 

Reacting to the visit, experts at Afrinvest, in their macroeconomic update, aligned with the IMF’s view that a long-term strategy should prioritise reducing reliance on debt and strengthening Nigeria’s fiscal position through prudent spending, improved tax collection, and efficient budget allocation, all within the framework of real economic growth.

 

“However, we believe Nigeria’s debt profile demands immediate action to prevent further deterioration. Recall the Q3:2024 debt statistics published by the Debt Management Office, which showed that total public debt surged to N142.3tn—the highest nominal level on record—driven by a widening budget deficit and the adverse impact of exchange rate depreciation on external debt.

 

“Specifically, domestic debt rose 3.3 per cent quarter-on-quarter to N73.4tn, marking a 24.2 per cent increase as of 9M:2024. The local debt accounted for 51.6 per cent of total public debt—within the DMO’s 70.0 per cent domestic debt mix cap. Meanwhile, external debt jumped 9.2 per cent q/q to N68.9tn, reflecting an 80.2 per cent increase, largely due to the continued depreciation of the naira, which fell 11.9 per cent in Q3 to average N1,579.22/$,” the investment house stated,.

 

The analysts pointed out that the total public debt-to-GDP ratio reached 52.8 per cent (based on 9M debt and FY nominal GDP), exceeding the 40.0 per cent limit set in the 2020–2023 Medium-Term Debt Management Strategy and nearing the 55 per cent risk threshold for developing countries.

 

Speaking on the high debt servicing allocation in the 2025 budget and deficit, the Minister of Budget and Economic Planning, Atiku Bagudu, revealed that a sustained positive economic condition may reduce it.

 

Bagudu said this on Monday at the KPMG budget 2025 day aired on Arise TV. He said, “On the deficit of N14tn, given what we saw is the innovative approaches to financing, first, because you don’t have recourse to the Central Bank of Nigeria at all. So, under no circumstance would the Central Bank be going above the legal limit of five per cent. So, we are going to market, and we are going to market in different ways. Innovative financing and innovative approaches: local bonds have been issued where governments have raised money. This, of course, represents a statement of intention, just to ensure that those whom we have borrowed from will be confident that we will have enough to meet our debt service obligation. But if, as we anticipate, economic conditions will continue to improve, we may not need to spend up to that in debt service.”

 

Meanwhile, Jimi Ogbobine, head of Agusto Consulting, a subsidiary of Agusto & Co., has asserted that the current administration of President Bola Tinubu was a big-spending government, hence heightened concerns about the fiscal deficit.

 

Speaking at the rating firm’s 2025 Economic Roundtable, Ogbobine said, “For Nigeria, we have about 10 key uncertainties, the first being our debt sustainability. Nigeria’s debt sustainability is a key worry point for us, so we have to pay attention to it. Many of us say that our political parties do not have ideologies, but that is not absolutely true. They may not have it in theory, but they have it in practice. This current party is a big government party, and that is why debt sustainability is a key concern. Nigeria’s Fiscal Responsibility Act says that fiscal deficit should be three per cent of the GDP. It is not a law; it is guidance even though it is written in a law.”