According to the Debt Management Office, Nigeria’s public debt stock stood at 46.25 trillion naira (US$103.1 billion) as of December 31, 2022; when the 22.7 trillion naira to be securitized is included, the total government debt amounts to 77.8 trillion naira.
Nigeria’s external debt has continued to rise, despite declining revenues. External borrowing has nearly quadrupled in the last five years, rising from $25.7 billion at the end of 2018 to $46 billion at the end of 2022, with debt servicing consuming about 96.3% of the earnings of Nigeria according to the World Bank.
Given the current economic realities, which we do not expect to improve anytime soon, debt levels are expected to continue to rise.
Nigeria’s debt-service ratio has been on the rise in recent years amid declining Nigerian revenues. Nigeria’s debt service to income ratio was reported to be 80.7% in 2022, according to the Finance Minister. However, the World Bank estimated Nigeria’s debt-to-income ratio to be 96%, higher than reported by the Ministry of Finance.
Increasing Nigeria’s total debt to 77.8 trillion naira will bring the country’s debt to GDP ratio to 38.4%. This is close to the 40% benchmark contained in the medium-term debt management strategy document and will likely reach that level in 2023 as actual borrowing is likely to exceed what is planned.
We expect the country’s fiscal space to remain tight in the short and medium term. Revised public spending for 2023 was estimated at an all-time high of N21.8 trillion. The revenue projection of N10.5tn is likely to be lower than the estimate; however, we expect the continued economic recovery to support tax revenues. We forecast the budget deficit to exceed the government’s deficit target of N11.3 trillion.
Recurring spending is likely to exceed targets, while capital spending will be lower than planned; in our view, oil revenue will continue to be below target, but non-oil revenue will exceed budget estimates. We expect an increase in domestic market lending, either through additional bonds or ways and means to finance the larger deficit. The fiscal deficit has exceeded the target by an average of c.65% during the last 5 years due to ambitious revenue estimates and the volatility of crude oil prices.