In a recent report titled “Bank Recapitalisation, Catalyst for a $1 trillion Economy,” investment management firm Afrinvest projected that Nigeria’s public debt stock could reach N130 trillion by the end of 2024. This forecast raises concerns about the country’s debt-to-GDP ratio and overall economic health.
Key Highlights:
- Debt Projection: Afrinvest estimates that by year-end 2024, Nigeria’s fiscal deficit, total public debt stock, debt-to-GDP ratio, and debt-servicing-to-revenue rate could exceed N13.0 trillion, N130 trillion, 55%, and 60%, respectively.
- Current Debt Status: As of Q1 2024, Nigeria’s public debt stock stood at N121.7 trillion, comprising 63.6% domestic debt (N77.5 trillion) and 36.4% external debt (N44.2 trillion).
- Debt Composition:
- Domestic Debt: Federal Government bonds (N44.8 trillion), Treasury bills (N20.3 trillion), and other domestic debt (N12.4 trillion).
- External Debt: Multilateral creditors (N14.3 trillion), bilateral creditors (N10.9 trillion), and commercial creditors (N19.0 trillion).
- Budget Concerns: Afrinvest critiques the 2024 budget as based on “overly optimistic” revenue assumptions, potentially leading to continued underperformance.
- Historical Context: In 2023, actual revenue outpaced the budgeted amount by 7.6% to N11.9 trillion, while aggregate expenditure rose by 31.8% to N18.8 trillion, resulting in a higher deficit of N46.9 trillion.
- Banking Sector Impact: The report warns that the government’s extensive borrowing could negatively affect bank deposits due to attractive yields on risk-free papers compared to bank deposit interest rates.
- Forex Market Challenges: While commending the Central Bank of Nigeria’s efforts to streamline Bureau of Change operations, Afrinvest cautions that forex market challenges persist due to weak foreign exchange reserves.
- Recommendations: The report suggests exploring alternative forex sources, including bilateral loans, natural resource-tied loans, debt-for-nature swaps, and asset concessions for short-term relief.
- Long-Term Solutions: Afrinvest emphasises the need to revitalise traditional forex inflow sources through supportive fiscal policies to achieve sustainable forex market stability.
This comprehensive analysis by Afrinvest highlights the complex economic challenges facing Nigeria, particularly in managing public debt and stabilising the forex market. As the country navigates these financial hurdles, policymakers and stakeholders will need to consider both short-term measures and long-term strategic solutions to ensure economic stability and growth.