FG's Debt Servicing Costs Rise to 47% of Budget

Nigeria's debt servicing costs have reached alarming levels, consuming 47% of the Federal Government's total expenditure in the first nine months of 2024. According to data from the Central Bank of Nigeria, the government spent N8.94 trillion on debt servicing during this period, a 56.8% increase from N5.69 trillion in the corresponding period of 2023.

The rising debt servicing ratio is a clear indication of Nigeria's growing dependence on borrowing to fund its budgetary operations, particularly as fiscal deficits continue to widen. In 2023, the Federal Government's retained revenue of N4.32 trillion meant that debt servicing accounted for 132% of revenue during the period. This figure worsened in 2024, with debt servicing consuming 147% of the N6.08 trillion retained revenue.

The government's recurrent expenditures, which include personnel costs, pensions, transfers, and debt servicing, rose sharply by 45.6% from N10.38 trillion in 2023 to N15.11 trillion in 2024. Personnel costs increased by 20% from N2.99 trillion to N3.59 trillion over the same period, reflecting the government's continued commitment to maintaining public sector salaries despite fiscal challenges.

However, the increase in capital expenditure was relatively modest compared to recurrent spending, rising by 20.8% from N3.19 trillion in 2023 to N3.86 trillion in 2024. This disproportionate allocation of funds highlights how rising debt obligations continue to crowd out critical capital investments, further exacerbating Nigeria's infrastructure deficit and limiting economic growth potential.

The fiscal deficit widened from N9.25 trillion in the first nine months of 2023 to N12.89 trillion during the same period in 2024, marking a 39.3% increase. This growing deficit highlights the persistent gap between government revenue and expenditure, compounded by escalating debt servicing costs.

President Bola Tinubu has boasted that his administration reduced the debt service ratio from 97% to 68%, but CBN data shows that the ratio worsened to 147% in the first nine months of 2024. The global credit ratings agency, Fitch, has projected Nigeria's external debt servicing to rise by $400 million to $5.2 billion in 2025.

Analysts have noted that there is no immediate relief for Nigeria's debt levels and debt service costs, with financing costs

expected to continue consuming a larger portion of the Federal Government's revenues. The President of the Nigerian Economic Society, Prof Adeola Adenikinju, has stated that spending on debt servicing will not yield any positive benefit for the Nigerian economy, and that the country needs to commence debt negotiation talks with its creditors.

The International Monetary Fund has emphasized the need for Nigeria to adopt more effective revenue mobilization strategies to ease its financial burden, noting that the country's debt service-to-revenue ratio stands at around 60%. The IMF has recommended that Nigeria broaden its tax base and implement a transparent and efficient tax collection system to generate more income.