Despite the inflated recurrent spending in the 2024 budget and a significant infrastructure gap, Nigeria’s debt repayment now surpasses both recurrent and capital expenditure. This situation is compounded by the country’s Foreign Direct Investment (FDI) reaching an all-time low of under US$1 billion.
Tilewa Adebajo, Chief Executive Officer of The CFG Advisory, highlighted this issue while discussing “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. Adebajo revealed, “Although N8.7 trillion was allocated for capital expenditure in the 2024 budget, only N1.32 trillion of this amount is directed towards infrastructure development.”
He further explained, “Nigeria’s current debt burden of US$130 billion consumes 95 percent of the nation’s revenues, resulting in debt repayment exceeding both recurrent and capital expenditure.” The country’s public debt stock increased from N97.34 trillion in December 2023 to N121.67 trillion in March 2024, according to the Debt Management Office.
Adebajo warned, “Nigeria’s debt levels have become unsustainable, posing the risk of default similar to 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.”
Despite the significant infrastructure deficit and growth challenges, Adebajo noted that Nigeria is poised to become the third-largest economy in Africa, following South Africa and Egypt. He stated, “The economy remains in stagflation, with ongoing reforms aimed at achieving sustainable growth.”
He noted that the introduction of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the removal of fuel subsidies have led to a 130 percent increase in the FAAC account from May to November 2023, reaching over N1 trillion. However, Adebajo pointed out, “FDI remains critically low, power transmission and distribution infrastructure is poor, and the macroeconomic situation has deteriorated over the past seven years, resulting in a loss of US$180-200 billion in GDP, now at US$390 billion.”
Adebajo highlighted that a 3 percent GDP growth rate is insufficient for Nigeria’s population of 200 million. He emphasized, “The country requires 8-10 percent GDP growth for sustainability. Currently, 135 million Nigerians are trapped in poverty, with 40 percent unemployment and low job creation and industrial productivity. Dwindling reserves and increasing credit default swap premiums have led to a Caa1 junk bond rating for Nigeria’s international credit ratings.”
Despite the sound fundamentals of the Nigerian economy, Adebajo criticized past economic leadership for failing to realize the country’s potential. “Poor economic leadership in the past has failed to grow the economy,” he remarked. However, he expressed optimism that with a new and highly rated economic management team in place, the success or failure of the economy will depend on their commitment to implementing and delivering on reform policies. “The goal is to move the economy out of stagflation and achieve sustainable GDP growth,” he emphasized.
To address Nigeria’s economic challenges, Adebajo recommended, “Nigeria should negotiate with creditors to restructure and extend debt maturities, reducing repayments and interest rates. Implement fiscal discipline by cutting non-essential government spending, eliminating wasteful subsidies, and improving public service efficiency. Expand the tax base, enhance tax collection, and introduce new revenue sources such as value-added tax (VAT) and property taxes. Improve transparency and accountability in government spending to build public trust and attract foreign investment.”
Adebajo also emphasized the importance of maintaining tight monetary policy to combat inflation, maintaining positive real interest rates to attract foreign investment and encourage savings, and keeping a competitive exchange rate to stimulate exports and reduce import dependence. He urged, “Collaborate with regional and international organizations for financial assistance, expertise, and market opportunities, and engage with the public, businesses, and civil society to gain support for economic reforms.”
