Nigeria’s budget deficit has been a topic of concern for several years, particularly in the outgoing administration, due to the country’s low revenue, rising inflation, and substantial expenditures. As a result, the government has heavily relied on debt financing, turning Nigeria into a debt-dependent nation. According to the Debt Management Office’s external debt stock reports, Nigeria’s debt to the World Bank increased from $6.29 billion (N2.9 trillion) in December 2015 to $13.93 billion (N6.42 trillion) in December 2022, reflecting a 121% increase in the country’s borrowing from the World Bank over the 8-year tenure of the outgoing president.
However, this increasing dependence on internal and external borrowing has drawn concerns from various financial experts, private equity investors, and international organizations, with the World Bank warning that Nigeria’s debt is “vulnerable and costly” and the IMF projecting that the country’s government may spend nearly 100% of its revenue on debt servicing by 2026. The Nigerian Economic Summit Group (NESG), a body of private sector leaders, has also warned against creating a “debt burden for future governments.”
To address these concerns, experts advise that the incoming administration must find sustainable pathways for budget funding. This requires attracting foreign investments into the country, which in turn requires creating a business-friendly, secure environment with minimal risks for investors.
Financial experts all agree that a radical departure from unbridled borrowing is essential for sustainable budget funding options. They emphasised the need for Nigeria to fully develop its federal structure, where most of the responsibilities of the Federal Government will shift back to the states, and the private sector will take up the provision of infrastructure.
Experts also called on the Nigerian government to focus more on debt restructuring instead of borrowing to revamp the economy. They suggested that Nigeria cannot continue to service debt but should rather restructure its debt financing to stimulate economic growth before being forced to do so by global economies. They recommend taming inflation to drop the interest rate to a single digit, removing financial restrictions and creating a favorable environment for businesses to thrive. They also advise restructuring institutions like the Nigeria National Petroleum Corporation (NNPC) and the Nigerian Liquefied Natural Gas (NLNG) to boost oil production and raise sustainable money from oil and gas production for the country.
Ultimately, the incoming administration must address Nigeria’s budget deficit by exploring sustainable funding options that attract foreign investments. This requires a departure from unbridled borrowing and a focus on debt restructuring to stimulate economic growth, develop infrastructure, and create an enabling environment for businesses to thrive. By adopting these measures, Nigeria can reduce its debt burden and build a strong, sustainable economy.