Analysis of Nigeria's Rising Public Debt and the Need for Revenue Boost

Analysis of Nigeria’s Rising Public Debt and the Need for Revenue Boost


The Director-General of Nigeria’s Debt Management Office (DMO), Ms Patience Oniha, has raised concerns over the country’s rising public debt. Speaking on a Channels Television programme, Sunrise Daily, Oniha stated that budget deficits, promissory notes, and constant borrowing have led to an increase in Nigeria’s public debt.

In her statement, she emphasized the need for higher revenue to cut down the high debt-service-to-revenue ratio. According to her, the debt-service-to-revenue ratio is currently high, and the only way to reduce it is by generating more revenue.

Oniha noted that Nigeria’s total public debt to Gross Domestic Product (GDP) ratio is one of the lowest in Africa. Countries like Kenya and Angola have over 60%, while the US, UK, and Germany have over 100% debt to GDP ratio. She explained that the reason why people in these countries are not complaining about their high debt level is that they have revenue to support it.

What Drives Nigeria’s High Debt Level?

The DMO DG pointed out that budget deficits, fresh loan disbursements, and promissory notes increase the country’s debt stock. She explained that Nigeria has been running a budget deficit for many years, and both good and bad times have been funded from borrowing. According to her, 85% to 95% of budget deficits are funded from borrowing.

The government has also contracted several loans in the past, and disbursements are ongoing, which has contributed to the country’s high debt level. Additionally, the government has been issuing promissory notes to settle obligations for which it does not have the revenue or cash. This combination of factors has led to the increase in Nigeria’s public debt.

According to recent data from the DMO, Nigeria’s total public debt stock increased to N46.25tn or $103.11bn in the fourth quarter of 2022. The debt consists of the domestic and external total debt stocks of the Federal Government and the sub-national governments (36 state governments and the Federal Capital Territory).

In terms of composition, the total domestic debt stock was N27.55tn ($61.42bn), while the total external debt stock was N18.70tn ($41.69bn). The comparative figure of public debt as of December 31, 2021, was N39.56tn or $95.77bn, indicating an increase of N6.69tn or $7.34bn within one year.

The Role of Budget Deficits in Nigeria’s Rising Debt Level

According to Investopedia, a budget deficit happens when expenses exceed revenue. In Nigeria’s case, budget deficits have contributed significantly to the rising debt level. The budget deficit under President Muhammadu Buhari’s administration is set to hit N47.43tn, according to an analysis of the Federal Government’s data from the Budget Office of the Federation.

Deficit financing has risen by 370.54% from N2.41tn in 2016 to N11.34tn in 2023, according to data. This means that Nigeria has been spending more than it is earning, which has led to an increase in public debt.

The Impact of Promissory Notes on Nigeria’s Public Debt

Promissory notes have also contributed to Nigeria’s rising public debt. The government has been issuing promissory notes to settle obligations that it does not have the revenue or cash to pay for. For instance, last year, the Federal Government paid off five promissory notes worth N311.73bn, which matured in 2022.

The DMO DG emphasized the need for the government to work towards diversifying its revenue sources, reducing unnecessary expenditures, and improving its debt management strategies to mitigate the risks associated with the rising debt.

She also pointed out that the debt-to-GDP ratio in Nigeria is still relatively low compared to other African countries, which have a debt-to-GDP ratio of over 60%. This suggests that Nigeria has room to borrow, but it must be done in a sustainable manner.

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