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Nigeria’s Debt Increase Challenges: Naira Devaluation Impact

Nigeria's Debt
Nigeria's Debt Increase Challenges: Naira Devaluation Impact

Nigeria’s public debt has witnessed a significant surge in the second quarter of 2023, raising concerns about its sustainability and impact on the country’s economy.

According to the Debt Management Office (DMO), the total public debt has reached a staggering N87.38tn, marking a 75.29% increase compared to N49.85tn recorded just three months earlier in March 2023.

Touchaheart Nigeria reports that the key factors contributing to this rapid increase and the potential consequences for Nigeria’s economic future.

Understanding the Debt Components

The N87.38tn public debt includes various components, with one of the most significant being the N22.71tn Ways and Means Advances from the Central Bank of Nigeria to the Federal Government.

Ways and Means Advances serve as a short-term financing method for covering budget shortfalls.

This addition to the public debt stock has raised questions about the fiscal management of the country.

In addition to Ways and Means Advances, the debt stock also incorporates new borrowings by the Federal Government and sub-national entities from both local and external sources.

These borrowings have contributed to the mounting debt burden.

Exceeding Projections

The DMO had earlier projected that Nigeria’s public debt would reach N77tn following the restructuring of the Central Bank’s Ways and Means Advances.

However, the actual debt surpassed this projection by a considerable margin, reaching N87.38tn.

This significant overshoot has raised concerns about the accuracy of debt management forecasts.

Breakdown of Domestic and External Debt

The public debt is further divided into domestic and external debt.

Domestic debt amounts to N54.13tn, constituting 61.95% of the total debt, while external debt stands at N33.25tn, making up the remaining 38.05%.

The substantial proportion of domestic debt highlights the importance of managing borrowing within the country effectively.

Challenges in Debt Sustainability

The DMO’s 2022 Debt Sustainability Analysis Report had already warned that Nigeria’s projected revenue of N10tn for 2023 would not support additional borrowings.

The debt service-to-revenue ratio of 73.5% for 2023 was identified as a significant threat to debt sustainability.

It was clear that the current revenue profile could not support further borrowing without risking the country’s financial stability.

To address this challenge, the government must focus on revenue generation by implementing comprehensive revenue mobilization initiatives and reforms.

This includes the Strategic Revenue Growth Initiatives and other related measures to increase the country’s tax revenue to GDP ratio.

Reducing Reliance on Borrowing

President Bola Tinubu’s administration expressed a commitment to break the cycle of overreliance on borrowing for public spending.

Encouraging the private sector to fund capital projects through public-private partnerships and exploring the possibility of privatizing government assets were identified as strategies to reduce the need for excessive borrowing.

Impact of Naira Devaluation

The devaluation of the naira played a significant role in increasing Nigeria’s public debt in naira terms.

The naira’s depreciation, combined with borrowing to cover subsidy payments, amplified the debt burden.

The government must address the root causes of these challenges to achieve long-term financial stability.


Nigeria’s rapid increase in public debt is a cause for concern, raising questions about the sustainability of its fiscal policies.

Addressing revenue challenges, reducing reliance on borrowing, and careful debt management are crucial steps to ensure a stable economic future.

The government’s commitment to these reforms will be vital in mitigating the risks associated with the growing debt burden.

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