Key Points
- Nigeria’s recurrent spending has significantly increased, creating an infrastructure gap.
- Debt repayment currently exceeds both recurrent and capital expenditures.
- FDI has dropped to an all-time low, below US$1 billion.
- N8.7 trillion was allocated for capital expenditure in the 2024 budget, but only N1.32 trillion is for infrastructure development.
- Nigeria’s debt burden is US$130 billion, serviced by 95 per cent of revenues.
- Public debt increased from N97.34 trillion in December 2023 to N121.67 trillion in March 2024.
In the 2024 budget, Nigeria’s recurrent spending has seen a significant increase, contributing to a notable infrastructure gap. Alarmingly, the country’s debt repayment currently surpasses both its recurrent and capital expenditures. Meanwhile, Nigeria’s Foreign Direct Investment (FDI) has plummeted to an unprecedented low, standing at under US$1 billion.
Highlighting Concerning Trends
The Chief Executive Officer (CEO) of The CFG Advisory, Mr. Tilewa Adebajo, highlighted these concerning trends on Thursday during his presentation on “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.
Budget Allocations and Debt Burden
Although N8.7 trillion was earmarked for capital expenditure in the 2024 budget, infrastructure development will receive just N1.32 trillion of this.
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According to Adebajo, Nigeria’s current debt burden of US$130 billion is being serviced by 95 per cent of revenues, as debt repayment now exceeds both recurrent and capital expenditure.
Rising Public Debt
Nigeria’s public debt stock rose from N97.34 trillion in December 2023 to N121.67 trillion in March 2024, according to the Debt Management Office (DMO).
Adebajo’s Warnings
“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,” Adebajo warned.
Economic Growth Challenges
He added that with a significant infrastructure deficit and growth challenges, Nigeria is set to become the third-largest economy in Africa, behind South Africa and Egypt.
Explaining the current state of Nigeria’s economic indicators, Adebajo regretted that the economy is still in stagflation, with ongoing reforms aiming to achieve a sustainable growth trajectory.
Positive Developments
He noted that the introduction of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the removal of fuel subsidies have seen the FAAC account increase by 130 per cent from May to November 2023 to over N1 trillion.
Declining Economic Indicators
“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.
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“GDP growth of 3 per cent is not sustainable for our population of 200 million; Nigeria requires 8–10 per cent GDP growth for sustainability; 135 million Nigerians are in the poverty trap, with 40 per cent 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,” the finance and economic expert stated.
Challenges in Economic Leadership
He believes that while the fundamentals of the Nigerian economy remain sound, poor economic leadership in the past has failed to realise potential and grow the economy.
Expectations from New Economic Management Team
But, “with a new and highly rated economic management team in place, expectations are high. The success or failure of our business projections and the economy will depend on their commitment and sincerity to implement and deliver on their reform policies. The goal is to drive our economy out of stagflation and attain sustainable GDP growth targets,” he emphasised.
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Proposed Solutions
Proffering solutions to the country’s economic challenges, the CFG Advisory boss stated that Nigeria should negotiate with creditors to restructure and extend the maturities of debt, allowing for more manageable repayments and reduced interest rates.
Fiscal Discipline and Revenue Improvement
Nigeria, he said, should implement fiscal discipline by reducing non-essential government spending, eliminating wasteful subsidies, and improving the efficiency of public services.
“Expand the tax base, improve tax collection, and introduce new sources of revenue, such as value-added tax (VAT) and property taxes. Improve transparency and accountability in government spending to build public trust and attract foreign investment,” he said.
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Monetary Policy and Economic Reforms
The central bank should continue to employ tight monetary policy to combat inflation, which is often associated with stagflation.
“Maintain positive real interest rates to attract foreign investment and encourage savings. Maintain a competitive exchange rate to stimulate exports and reduce reliance on imports.
“Collaborate with regional and international organisations to access financial assistance, expertise, and market opportunities. Engage with the public, businesses, and civil society to gain their support for economic reforms,” Adebajo recommended.
