Can Nigeria curb rising debt stock?

Nigeria is facing a mounting debt crisis as its public debt stock surged by 10.3 per cent to 134.3 trillion naira at the end of the second quarter of this year. Esili Eigbe, Director at ESCAP Management, highlighted the concerning trajectory of Nigeria's debt levels and emphasized the unsustainability of the current situation. While the government often references the debt-to-GDP ratio as a measure of financial health, Eigbe pointed out that the debt-to-revenue ratio is a more important metric to assess the country's ability to service its debt. Nigeria's debt-to-revenue ratio has reached alarming levels, comparable to countries in debt crises like Venezuela and Yemen, indicating a looming financial crisis. With projections showing a further increase in public debt to almost 160 trillion naira by 2025, Nigeria is at risk of credit rating downgrades, higher inflation rates, and social unrest due to escalating debt servicing costs. The implications of unchecked debt accumulation could severely hamper the government's capacity to provide essential public services and maintain economic stability. Various factors have contributed to the significant rise in Nigeria's debt stock, including the removal of fuel subsidies, Naira FX volatility, devaluation, and increased borrowing costs. While the government aims to secure more affordable financing from development finance institutions to manage the debt burden, Eigbe cautioned against relying solely on additional borrowing. Instead, he advocated for a strategic consolidation of spending and exploring alternative funding mechanisms such as public-private partnerships to ensure sustainable capital expenditure. Proposals to negotiate debt repayment extensions with multilateral creditors and enhance revenue generation through tax reforms and efficient collection mechanisms were also put forth as essential measures to address the escalating debt crisis. Additionally, Eigbe underscored the importance of implementing a debt ceiling to constrain the government's ability to accumulate excessive debt levels beyond a predetermined threshold. Despite the government's adherence to a self-imposed 40% debt to GDP ratio, which has now surpassed 50%, Eigbe emphasized that focusing on the debt to revenue ratio is imperative for a realistic assessment of Nigeria's debt sustainability and repayment capacity. As Nigeria grapples with the repercussions of escalating public debt, strategic fiscal management and prudent debt containment strategies are crucial to avert a full-blown financial crisis and safeguard the country's economic stability.