Nigeria’s Debt-to-GDP Ratio: Projected Declines Amidst Rising Public Debt
The International Monetary Fund (IMF) has made a noteworthy projection regarding Nigeria’s current economic status, predicting that the country’s debt-to-gross domestic product (GDP) ratio, currently at 50.7 percent, will decline in the coming years. This metric, which serves as a critical indicator of a nation’s financial health, allows for the comparison of a country’s public debt to its GDP, providing essential insights into its ability to repay its obligations.
Understanding Debt-to-GDP Ratio
The debt-to-GDP ratio is a widely used benchmark in economic assessments, indicating a country’s capacity to manage its debt obligations in relation to its economic output. A higher debt-to-GDP ratio generally suggests a greater risk of default, indicating that the country may struggle to honor its debts. Conversely, a lower ratio signals a healthier economic position, allowing for greater confidence among investors and creditors. According to the IMF’s ‘Fiscal Monitor Report,’ released recently, Nigeria’s debt ratio is expected to slightly decrease to 49.6 percent in 2025, marking a positive trend in the nation’s fiscal landscape.
Recent Trends in Nigeria’s Debt Statistics
Currently, Nigeria’s debt-to-GDP ratio has recorded fluctuations, noted at 46.1 percent in October 2023, climbing to 50.7 percent a year later. The IMF’s report sheds light on several components of Nigeria’s public debt, including overdrafts acquired from the Central Bank of Nigeria (CBN) and liabilities linked to the Asset Management Corporation of Nigeria (AMCON). Importantly, the IMF commentary suggests that the impact of CBN overdrafts and government deposits at the CBN nearly cancel each other out, while the debt associated with AMCON is expected to decline.
The IMF’s projections extend beyond 2025, estimating that the ratio will further decrease to 48.5 percent in 2026 and 48.2 percent in 2027, before seeing a slight uptick in the following years—48.8 percent in 2028 and 49.1 percent in 2029. This gradual decline can potentially ease pressures on Nigeria’s fiscal stance, allowing for economic recovery and growth.
Examination of Nigeria’s Rising Public Debt
Despite the encouraging forecasts from the IMF, current realities paint a contrasting picture. Under the present administration, Nigeria’s public debt has escalated sharply, rising from N87.38 trillion in June 2023 to N121.67 trillion by March 2024. This represents a significant increase in a relatively short timeframe, indicating challenges in stabilizing public finances. The Debt Management Office (DMO) reported that this rise stemmed from new borrowing to bridge the 2024 budget deficit alongside disbursements from various multilateral and bilateral lenders.
A more granular analysis reveals that Nigeria’s public debt comprises largely domestic debt, totaling N65.65 trillion ($46.29 billion), juxtaposed with an external debt figure of N56.02 trillion ($42.12 billion). This complex debt structure requires vigilant management and sound economic policies to mitigate risks associated with the burgeoning liabilities.
The Thresholds and Implications of Debt
Historically, Nigeria’s federal government has established a debt-to-GDP threshold of 25 percent, notably lower than the international benchmark of 56 percent for comparable nations. Nonetheless, fiscal analysis indicated that Nigeria’s debt-to-GDP ratio surged to 44.1 percent by the third quarter of 2023, illustrating a departure from the federal target and raising concerns among policymakers.
Global Debt Context and Future Considerations
Compounding Nigeria’s challenges is the broader global framework, where the IMF anticipates that public debt worldwide will exceed $100 trillion by the end of the year, accounting for nearly 93 percent of global GDP. The outlook suggests that by 2030, global debt levels could approach 100 percent of GDP, necessitating significant fiscal reforms across many nations.
Countries, including Nigeria, must now confront their debt risks through judicious fiscal policies designed to sustain growth while safeguarding the most vulnerable sectors of society. The IMF emphasizes the importance of leveraging current monetary policy relaxations to navigate these turbulent fiscal waters effectively.
Conclusion
As Nigeria looks ahead, the IMF’s projections of a declining debt-to-GDP ratio could offer a glimmer of hope, signaling potential stabilization amid rising public debt. However, the economic reality presents hurdles that the country must navigate with prudence. Careful management of public debt, alongside strategic governmental policies, will be vital in ensuring economic resilience in the face of both domestic and international financial pressures. The ongoing journey to fiscal stability is critical—not just for Nigeria, but for the well-being of its citizens and the broader region.
