President Bola Tinubu has formally requested the National Assembly’s approval for a new external loan of N1.767 trillion ($2.209 billion) to finance part of the N9.7 trillion deficit in the 2024 budget. The president’s letter was read during the Assembly’s plenary session on Tuesday.
In addition to the loan request, Tinubu also forwarded the Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) for 2025-2027 to the Assembly. The National Social Investment Programme Establishment Amendment Bill was also submitted, aiming to institutionalize the social register as the primary tool for implementing federal welfare programs.
Rising debt obligations
Nigeria’s foreign debt servicing costs continue to rise sharply, reflecting growing concerns over the country’s debt sustainability. According to the Central Bank of Nigeria (CBN), $3.58 billion was spent servicing foreign debt in the first nine months of 2024, a 39.77% increase from the $2.56 billion recorded during the same period in 2023.
The CBN’s data revealed significant month-on-month variations:
- January 2024: Payments surged by 398.89%, reaching $560.52 million, up from $112.35 million in January 2023.
- May 2024: Marked the highest monthly payment, with $854.37 million, a 286.52% increase from $221.05 million in May 2023.
- September 2024: Payments rose by 17.49%, totalling $515.81 million compared to $439.06 million in September 2023.
Conversely, some months saw declines. For instance, July 2024 recorded a 15.48% reduction compared to July 2023, while August 2024 saw a 9.69% drop.
The naira’s devaluation further exacerbated the financial strain. By June 2024, the naira depreciated from N899.39/$1 in December 2023 to N1,470.19/$1, escalating the cost of repaying foreign debt in local currency.
Subnational debt and reliance on federal allocations
Nigeria’s 36 states have also grappled with rising debt burdens. By June 30, 2024, their combined debt reached N11.47 trillion, a 14.57% increase from N10.01 trillion in December 2023.
- External debt: Rose from $4.61 billion to $4.89 billion.
- Domestic debt: Declined from N5.86 trillion to N4.27 trillion during the same period.
Despite a nominal increase in debt levels, the states’ share of Nigeria’s total public debt of N134.3 trillion as of June 2024 decreased slightly due to the rising federal obligations.
A BudgIT report highlights the state’s heavy reliance on federal allocations, with 32 states deriving at least 55% of their revenue from the Federation Account Allocation Committee (FAAC). Fourteen states relied on FAAC for 70% of their revenue, with Lagos and Ogun being notable exceptions due to their higher internally generated revenues (IGR).
In 2023, Lagos State contributed N1.24 trillion, representing 14.32% of the total revenue generated by all states, while 65% of the year-on-year revenue growth of the 36 states was attributed to FAAC allocations.
Implications and concerns
The escalating debt levels, combined with Nigeria’s dependency on oil revenue and federal allocations, underscore the country’s fiscal vulnerabilities. The liberalization of exchange rates has further amplified the financial pressures on both the federal and state governments, raising concerns about long-term fiscal sustainability and the potential impact of external economic shocks.
The National Assembly’s decision on Tinubu’s loan request will have significant implications for Nigeria’s fiscal strategy, debt management, and economic stability in the coming years.
