Addressing Nigeria’s rising public debt

Nigeria is set to receive a substantial $1.7 billion loan from the World Bank, drawing attention to the country's fiscal management amid concerns over debt servicing and shrinking revenue. Wole Adelokun, a Partner and Economist at KPMG West Africa, shed light on this development in a recent discussion on CNBC Africa. The loan, slated to target key sectors such as health, human capital, sustainable power, and irrigation projects, is aimed at bolstering economic growth. However, the mounting debt portfolio, which stood at $91.46 billion as of the end of Q1, raises worries about debt sustainability. With recent loans adding to the financial burden, including a $3.3 billion loan from Afrixin Bank, $750 million for rural electrification, and a $500 million bond, there are valid concerns about the country's capacity to service its debts effectively. While the $1.7 billion infusion could fuel economic expansion if deployed strategically, mismanagement could further strain Nigeria's debt sustainability threshold. Adelokun stressed the importance of prudent utilization of funds to maximize the loan's impact while safeguarding the country's financial stability. He emphasized the need for proactive measures to enhance self-sufficiency and reduce reliance on external borrowing. To achieve this, Adelokun highlighted the significance of optimizing tax strategies, boosting revenue targets, and maintaining a balance between debt accumulation and economic growth. The debt-to-GDP ratio, a key parameter for assessing debt sustainability, currently hovers around 42% in Nigeria, slightly above the recommended threshold of 40%. Despite this, the country remains below the 55% benchmark set for developing nations, signaling a relatively favorable debt position compared to countries like the UK, Portugal, and Belgium. However, the critical metric of debt service to revenue stands at a concerning 74%, indicating that a substantial portion of earnings is allocated to debt repayment. This underscores the imperative for Nigeria to enhance revenue generation and fiscal discipline to reduce the burden of debt servicing and safeguard its financial health. As Nigeria navigates its mounting public debt challenges, prudent financial management, targeted investments, and sustainable revenue-enhancing strategies will be crucial in ensuring long-term economic stability and growth.