NIGERIA’S debt service to revenue ratio has increased significantly, from 33.8 percent in 2017 to a projected 110.4 percent in 2024, signalling potential difficulties in meeting debt servicing obligations relative to revenue generation, says Afreximbank in it’s latest country brief on Nigeria 2024.
This, according to experts, implies that the country may be heading towards debt trap, a situation where debtors are forced to take new loans in order to repay existing debt obligations.
Although, the minister of Finance, Wale Edun, has said Nigeria’s revenue-to-debt service ratio dropped from 97 percent in the first half of 2023 to 68 percent within the same period in 2024, latest quarterly statistical bulletin of the Central Bank of Nigeria paints a stark picture of the growing fiscal crisis, with debt service costs consuming a staggering 74 percent of the federal government’s retained revenue.
It observed that Nigeria’s financial sector is one of the most extensive and diversified on the African continent, housing numerous banks and non-bank financial institutions.
According to Afreximbank, Nigeria’s financial sector has demonstrated exceptional resilience and robust performance despite local and global challenges.
It recognised that total deposits in the sector surged to approximately US$102.28 billion by June 2022, marking a substantial 28.5 percent increase from the previous year’s figure of US$79.6 billion.
“Nigeria is currently benefiting from a relatively low FX debt-to-GDP ratio, but this ratio is on the rise. In 2017, the debt-to-GDP ratio was 16.7 percent, which is forecast to increase to 40.3 percent in 2024, indicating a significant debt growth relative to the economy’s size.
“Similarly, the debt-to-export ratio has also shown a substantial increase, reaching 235.7 percent in 2020 before gradually declining. It is projected to decrease
to 137.1 percent in 2025, suggesting a heavy reliance on external borrowing compared to export earnings, “ it stated.
Despite these increases, Nigeria’s risk of debt distress is considered moderate, as the present value of external debt remains below critical sustainability metrics. However, Afreximbank noted that the debt service indicators present challenges.
The debt service to export ratio has varied over the years, reaching 18.4 percent in 2023, which indicates the proportion of exports needed to service debt obligations.
In 2023, Nigeria’s GDP was estimated at US$362.8 billion positioning it as one of the largest economies on the African continent.
Nigeria is the leading oil-producing country in Africa. Despite the rising significance of the non-oil sector, Nigeria continues to uphold a prominent position in oil production in Africa.
According to the bank, while oil contributes only approximately six percent to the GDP, its impact extends beyond economic boundaries.
It is an important source of government income, foreign exchange, and export earnings, with over 70 percent of export earnings derived from this sector. Furthermore, oil is indispensable in facilitating payment for crucial imports, such as food items and production factors, underscoring its vital function in sustaining Nigeria’s economy.
However, recent global events, notably the COVID-19 pandemic and subsequent oil price volatility, highlight the urgent need for Nigeria to expedite economic diversification efforts. This is crucial for reducing dependence on oil revenue and fostering sustainable growth amid uncertain global dynamics.
The Afreximbank bank report outlines the political environment, provides an economic overview, and covers trade, reserves, and the financial sector.
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