How should Nigeria address debt sustainability concerns?

Nigeria is at a critical juncture as it grapples with mounting concerns over debt sustainability in light of plans to borrow about $2.2 billion to support the 2024 budget. Experts are raising alarm bells over the rapid pace at which Nigeria's debt stock is growing, posing significant challenges to the country's financial stability. Muda Yusuf, Director at the Center for the Promotion of Private Enterprises, expressed his apprehensions during a recent interview, emphasizing the need for caution and fiscal consolidation to address these pressing issues. Yusuf highlighted the alarming increase in Nigeria's total debt over the past decade, which has surged from 12.6 trillion naira to a staggering 134 trillion naira as of June this year. This exponential rise in debt has far-reaching implications, including mounting debt service obligations, diminished opportunities for infrastructure development, and a concerning escalation in the debt-to-GDP ratio, which has surpassed the 50 percent mark. Yusuf underscored the significance of prudently managing the country's debt accumulation, particularly considering the exchange rate risks associated with foreign debts and the potential burden on future generations. He cautioned against jeopardizing Nigeria's financial stability by rashly escalating debt levels without due consideration for long-term consequences. The interview also delved into the government's reform efforts and revenue generation strategies. While acknowledging the administration's robust reform agenda, Yusuf expressed reservations regarding the efficacy of current revenue drive initiatives. Despite anticipations of increased revenue following reforms such as the removal of foreign exchange and fuel subsidies, the actual revenue figures have fallen short of expectations, leading to widening fiscal deficits. Yusuf warned that sustained deficits could exert pressure on macroeconomic indicators, including exchange rates and inflation, with far-reaching implications for the overall economy. He stressed the imperative of enhancing fiscal consolidation measures to align expenditure with revenue generation, advocating for prudent budget allocation and expenditure cuts to mitigate macroeconomic challenges. Furthermore, Yusuf addressed the ongoing tax reforms in Nigeria, emphasizing the need for a comprehensive review of proposed tax legislation to strike a balance between positive provisions and politically sensitive elements. He urged policymakers to tread cautiously and avoid contentious provisions that could derail the reform process, highlighting the potential benefits of rationalizing taxes, streamlining processes, and leveraging technology for improved tax administration. The interview concluded with a discussion on fiscal consolidation and the Medium-Term Expenditure Framework, raising concerns over the document's optimistic assumptions regarding oil prices and output levels. Yusuf underscored the importance of realistic benchmarks to guide prudent fiscal planning and expenditure management. Notably, he criticized the expansionary stance of the 2025 budget, cautioning against policies that could exacerbate inflationary pressures. In Yusuf's assessment, prioritizing fiscal discipline and efficient revenue generation mechanisms are key to addressing inflation and fostering sustainable economic growth. Ultimately, the interview shed light on the urgent need for Nigeria to navigate its debt sustainability challenges with strategic foresight, prudent financial management, and a steadfast commitment to long-term economic stability.