Revamping Nigeria’s strategy to curb rising debt

The latest data from the National Bureau of Statistics and the Debt Management Office of Nigeria has sent shockwaves through the economic landscape of the country. It has been revealed that the Nigerian government deducted over 415 billion naira from state government allocations to service external loans, while the country's debt surged to 97.34 trillion naira in the fourth quarter of 2023. This represents a significant increase from the previous quarter's total debt of 87.9 trillion naira, marking a 10.7 percent rise, equivalent to about 108 billion dollars. To shed light on these concerning developments, Paul Alaje, Senior Economist at SPM Professionals, joined CNBC Africa for an in-depth discussion. Paul Alaje emphasized that the continuous rise in Nigeria's debt profile is a cause for real concern, as it indicates a growing inability to generate sufficient revenue to fund budget deficits. The country's debt accumulation not only encompasses local debt but also extends to foreign debt, resulting in a total debt exceeding 90 trillion naira. This escalating debt trajectory poses a direct threat to Nigeria's financial stability and economic growth prospects. One of the primary drivers behind the mounting debt burden is the federal government's struggle to boost revenue streams. Despite efforts by the Federal Inland Revenue Service to set an ambitious revenue target of over 19 trillion naira for 2024, challenges persist in generating sustainable income to offset escalating debt obligations. Alaje highlighted the urgent need for enhanced productivity in both the public and private sectors to improve revenue generation and mitigate the reliance on borrowing to fund essential services and infrastructure projects. Moreover, the looming specter of impending minimum wage hikes presents added fiscal pressure on Nigeria's already strained financial resources. Alaje cautioned that the surge in minimum wage to potentially 180,000 naira per month could push several states and the federal capital territory into financial distress, further exacerbating the debt dilemma. To address these challenges effectively, Alaje underscored the necessity for proactive structural reforms and strategic policymaking to bolster revenue collection and enhance fiscal sustainability. Looking ahead, Alaje expressed concerns regarding the government's reliance on continued borrowing to meet its financial obligations, including plans for a Eurobond issuance in the near future. While acknowledging the short-term imperatives of servicing debt commitments, he warned that Nigeria's debt servicing requirements could outpace its borrowing capacity by 2027, necessitating a critical reevaluation of sustainable debt management practices. Alaje emphasized the pivotal role of infrastructure development in fostering economic stability and urged authorities to prioritize long-term investments in essential sectors to avert a looming debt crisis. As Nigeria navigates the complex terrain of rising debt levels and fiscal challenges, Alaje's insights underscore the imperative for strategic economic reforms, revenue diversification, and prudent debt management strategies to safeguard the country's financial integrity and promote sustainable growth. The trajectory of Nigeria's debt trajectory will undoubtedly shape the nation's economic trajectory in the years to come, underscoring the urgency of proactive measures to address the current debt crisis and chart a path towards fiscal resilience and prosperity.