Nigeria's Debt Dilemma: FG's Domestic Borrowing Rises Amidst Economic Concerns and IMF Warnings
Despite escalating anxieties surrounding Nigeria's burgeoning public debt and the crippling impact of soaring debt servicing costs, the Federal Government (FG) has intensified its reliance on domestic investors, borrowing a substantial N10.85 trillion in the first four months of the year.
This surge in domestic borrowing occurs against a backdrop of alarming debt statistics. Nigeria's total public debt witnessed a staggering 48.6 percent increase in 2024, reaching N144.66 trillion from N97.34 trillion in 2023, with the Federal Government shouldering a colossal 95 percent, or N137.28 trillion, of this burden. Consequently, the FG's debt service expenditure in 2024 alarmingly surpassed its total revenue by 150 percent, a dramatic escalation from the 65 percent recorded in 2023.
Data released by the Debt Management Office (DMO) further underscores the gravity of the situation. Domestic debt service costs climbed by 12 percent year-on-year (YoY) to N5.9 trillion in 2024, while external debt servicing obligations surged by 33 percent YoY to $4.7 billion, up from $3.5 billion in the preceding year. This unsustainable trend has led to a deterioration of the nation's Debt-to-GDP ratio, rising to 52.9 percent in 2024 from 48.7 percent in 2023, a critical indicator of the economy's capacity to manage its debt obligations.
The upward trajectory of both total public debt and debt servicing expenses appears poised to continue, fueled by the Federal Government's increased appetite for domestic borrowing in the first four months of 2025 (4M'25).
Increased Reliance on Domestic Debt
Financial Vanguard's analysis of the DMO's Federal Government of Nigeria (FGN) Bond auctions and the Central Bank of Nigeria's (CBN) Treasury Bills (TB) auctions reveals a marginal 0.7 percent increase in the FG's total borrowing from domestic investors in 4M'25, reaching N10.85 trillion compared to N10.767 trillion in the corresponding period of 2024 (4M'24).
This slight overall increase masks a significant shift in borrowing instruments. The rise was primarily driven by increased borrowing through Treasury Bills and the FGN Savings Bonds, which effectively offset a decline in borrowing via FGN Bonds.
A deeper dive into the data shows that the FG's borrowing through Treasury Bills surged by 8.3 percent to N8.377 trillion in 4M'25 from N7.74 trillion in 4M'24. While TB borrowing fluctuated month-on-month, peaking in March before declining in April, it remained the dominant source of domestic borrowing. Similarly, borrowing through the FGN Savings Bonds witnessed a substantial 49.5 percent increase to N17.29 billion in 4M'25 from N11.56 billion in 4M'24, albeit representing a smaller overall volume compared to TBs.
Investor Appetite Remains Strong
Despite the mounting debt concerns, domestic investors continue to exhibit a strong appetite for lending to the Federal Government, as evidenced by the consistent over-subscription of offered instruments. During the four-month period, the DMO offered a total of N1.45 trillion in bonds, while the total public subscription reached an impressive N3.33 trillion. This robust demand indicates continued confidence in government securities, despite the underlying fiscal challenges.
IMF Issues Stern Warning
The Federal Government's increasing reliance on domestic borrowing in 4M'25 appears to disregard the explicit advice of the International Monetary Fund (IMF), which has urged governments to curtail spending to mitigate the impact of global economic headwinds.
In its Fiscal Monitor April 2025 report, the IMF projected a further increase in global public debt this year, pushing levels above 95 percent of global GDP. The report stressed that "fiscal policy should prioritize reducing public debt and establishing and widening buffers to address spending pressures and economic shocks."
Specifically addressing Nigeria, the IMF, while projecting a marginal decline in the country's Debt-to-GDP ratio to 52.5 percent in 2025 from 52.9 percent in 2024, forecasts a worsening of Nigeria's Fiscal Deficit-to-GDP ratio to 4.5 percent this year, up from 3.4 percent in the previous year. Consequently, the IMF called for enhanced efficiency in government spending in Nigeria to cushion the impact of heightened global uncertainties on government borrowing and public debt.
Davide Furceri, Deputy Division Chief of the Development Macroeconomic Division in the IMF Research Department, emphasized the need for Nigeria to create additional fiscal space by "boosting revenue through improved mobilization efforts, and second, scaling up spending in key areas like social protection and investment." He cautioned that while acknowledging pressing spending needs, resource allocation must prioritize efficiency and strategic prioritization.
Analysts Weigh In on the Implications
Analysts who spoke to Financial Vanguard echoed concerns about the continued upward trend in the FG's borrowing, predicting a higher fiscal deficit and debt service cost, even if a projected increase in the nation's GDP leads to a slight improvement in the Debt-to-GDP ratio.
Analysts at FBNQuest Merchant Bank, in their review of the FG's January fiscal activities, noted a significant deterioration in the debt service-to-revenue ratio, underscoring the escalating pressure of debt obligations on the government's strained finances and raising concerns about debt sustainability. They anticipate continued pressure due to underwhelming oil production levels, potentially leading to a fiscal deficit exceeding budgetary targets.
While acknowledging that GDP growth could technically lower the Debt-to-GDP ratio, David Adonri, Analyst and Vice Executive Chairman at Highcap Securities Limited, warned that the overwhelming debt service ratio, consuming a substantial portion of public revenue, poses a significant risk of financial embarrassment for the country, particularly in light of declining crude oil prices.
However, some analysts pointed out a potential silver lining in the FG's increased reliance on Treasury Bills for domestic borrowing. Mallam Garba Kurfi, CEO of APT Securities Limited, suggested that the preference for shorter-term TBs, driven by high interest rates on longer-term bonds and expectations of potential rate decreases, could help mitigate debt service costs in the long run. This strategy allows the DMO to avoid locking in high yields on longer-term instruments while awaiting more favorable interest rate conditions.
In conclusion, Nigeria finds itself at a critical juncture. While domestic investors continue to provide a readily available source of funding for the government, the escalating levels of borrowing, coupled with a high debt service burden, raise serious questions about the nation's long-term fiscal sustainability.
The divergence between the government's actions and the IMF's warnings underscores the urgent need for a comprehensive strategy to curb borrowing, enhance revenue generation, and prioritize efficient spending to avert potential economic distress.