This week, we share our views on the IMF’s perspectives of the fiscal realities of Nigeria.
In a recent country visit, IMF’s First Deputy Managing Director Gita Gopinath described Nigeria’s debt level as moderate rather than high risk, offering a somewhat optimistic assessment of the country’s fiscal position.
However, she underscored the urgent need for the government to strengthen domestic revenue generation, highlighting that heavy reliance on borrowing is unsustainable in the long run.
Gopinath also emphasised that savings from fuel subsidies removal should be strategically redirected into government reserves rather than spent inefficiently.
Overall, the IMF Deputy Director stressed on the need for Nigeria to optimise its revenue streams by strengthening tax collection, curbing leakages, and ensuring fiscal discipline.
Aligning With IMF
We align with the IMF’s view that a long-term strategy should prioritise reducing reliance on debt and strengthening Nigeria’s fiscal position through prudent spending, improved tax collection, and efficient budget allocation, all within the framework of real economic growth.
However, we believe Nigeria’s debt profile demands immediate action to prevent further deterioration.
Recall the Q3:2024 Debt statistics published by the Debt Management Office (DMO) which showed that total public debt surged to ₦142.3tn — the highest nominal level on record — driven by a widening budget deficit and the adverse impact of exchange rate depreciation on external debt.
Specifically, domestic debt rose 3.3% q/q to ₦73.4tn, marking a 24.2% increase as of 9M:2024. The local debt accounted for 51.6% of total public debt — within the DMO’s 70.0% domestic debt mix cap.
High External Debt
Meanwhile, external debt jumped 9.2% q/q to ₦68.9tn, reflecting an 80.2% increase, largely due to the continued depreciation of the naira, which fell 11.9% in Q3 to average ₦1,579.22/$1.00.
As a result, total public debt-to-GDP ratio reached 52.8% (based on 9M debt and FY nominal GDP), exceeding the 40.0% limit set in the 2020–2023 Medium-Term Debt Management Strategy (MTDS) and approaching the 55.0% risk threshold assumed for developing countries.
When annualised, total public debt equates to 66.1% of GDP, while external debt-to-GDP stood at 25.6% (annualised external debt: 32.0%).
In the period under review, Nigeria spent ₦3.6tn on debt servicing, a 1.7% increase from ₦3.5tn in the previous quarter. Notably, external debt servicing rose 29.7% q/q in naira terms (₦2.1tn in Q3 vs. ₦1.7tn in Q2), driven by both higher dollar-denominated repayments ($1.3bn in Q3 vs. $1.1bn in Q2) and a weaker exchange rate (₦1,601.0/$1.00 vs. ₦1,470.1/$1.00 in Q2). In contrast, domestic debt servicing declined 23.1% q/q, falling from ₦1.9tn in Q2 to ₦1.4tn in Q3.
Debt Servicing
Overall, ₦9.6tn was cumulatively spent on debt servicing in 9M:2024 surpassing the ₦6.2tn budgeted for the period by 154.7% and accounting for 75.2% of pro-rata projected revenue (₦12.7tn), well above the self-imposed debt-service to revenue threshold of 50.0% based on the 2020-2023 MTDS.
Given weak optimism around FG’s projected revenue of ₦40.9tn for 2025 (owing to overly optimistic assumptions), we estimate that actual deficit could surpass the ₦13.4tn budgeted by as much as 40.0% in a base case, hence paving the way for total debt profile to potentially exceed ₦170.0tn by the end of 2025.
Meanwhile, Nigeria’s oil production (ex. condensate) rose to 1.54mbpd in January 2025 (highest in 3 years) and surpassing OPEC’s quota for the first time in 12 months. However, this remains significantly below the government’s 2.0mbpd target, which is necessary to generate 48.0% of the 2025 revenue projection.
More so, fiscal challenges might compound in the long-run if government’s efforts to revamp Nigeria’s export sector — particularly in agriculture and manufacturing — do not yield expected outcome.
In the meantime, we see potential for GDP rebasing to drive lower Debt-to-GDP reading which could provide a different surface picture on fiscal position.
We, however, note the potential for the infrastructure drive and investments by the current administration to be a game-changer and provide catalysts for long-term growth should other supportive indices (e.g security and upholding of rule of law) be given the needed attention.
Afrinvest
