Addressing Nigeria’s rising debt profile

Nigeria's Minister of Finance and coordinating Minister for the economy, Wale Edun, recently highlighted the country's inability to rely on borrowing to fund the 2024 national budget. This assertion comes at a time when the Senate Committee scrutinizing the 2024-2026 Medium Term Expenditure and Fiscal Strategy Paper has expressed concerns over the revenue-generating Ministries, Departments, and Agencies meeting their targets. Paul Alaje, a Senior Economist at SPM Professionals, joined CNBC Africa to delve into Nigeria's debt profile, inflation, and the Central Bank of Nigeria's shift towards orthodoxy. The economic landscape in Nigeria is grappling with a myriad of challenges, including soaring inflation rates, debt servicing constraints, and the urgent need for comprehensive economic policies to navigate through these turbulent times. Alaje began by dissecting the October inflation figures, emphasizing the significant impact of inflation on GDP growth rates and interest rates. He cautioned that Nigeria's economy, currently mired in stagflation, is facing a dire situation with inflation expected to rise further. The double-digit inflation rate, reminiscent of figures during the civil war, poses a threat to price stability and economic growth. Alaje underscored the urgent need for authorities to address the underlying drivers of inflation, particularly food inflation, and implement strategic measures to combat the rising inflationary pressures. Furthermore, Alaje shed light on the forthcoming Monetary Policy Committee meeting, where crucial decisions regarding interest rates and monetary policies will be deliberated. He elucidated two potential scenarios, one involving a rate hike that could negatively impact businesses and impede economic growth, and the second scenario entailing a rate cut that might exacerbate inflationary pressures. The delicate balance between stabilizing the economy and fostering growth amid inflationary challenges underscores the complexity of the policy decisions facing the authorities. The discourse then shifted to Nigeria's escalating debt profile, with Alaje echoing the concerns raised by the Finance Minister and the Senate Committee regarding the country's reliance on borrowing. Alaje highlighted that a staggering 98% of the revenue is currently allocated towards debt servicing, leaving minimal resources for critical government functions. The mismatch between revenue generation and debt servicing underscores the urgent need for a paradigm shift in revenue collection strategies. Alaje emphasized the imperative for innovative revenue collection methods, tapping into sectors that have shown resilience and growth, such as the telecom and banking industries. Alaje underscored the critical importance of optimizing revenue collection to alleviate the burden of debt servicing and enable sustainable economic development. The need for comprehensive fiscal reforms and sound economic policies to steer Nigeria away from a debt crisis and foster economic stability cannot be overstated. As the country navigates these economic headwinds, the spotlight remains on the government's ability to implement effective strategies that bolster revenue generation, manage inflation, and mitigate the debt burden.