Nigeria's Debt Sustainability and Fiscal Accountability: An In-depth Analysis

I was recently afforded the honor of delivering a lecture titled "Public Debt Sustainability and Fiscal Responsibility in Nigeria" as part of Nile University's annual lecture series. The event, hosted by Professor Jide Oladipo, Dean of the Faculty of Social Sciences, was a fulfilling experience, building on my prior engagements at the university. Nile University holds a special place for me, and I had the pleasure of meeting the Vice Chancellor, Professor Dilli Dogo, post-lecture. The auditorium was filled to capacity, a testament to the university's engagement with its students and faculty. It was particularly gratifying to interact with young minds from diverse academic disciplines, including doctoral candidates, who posed insightful and challenging questions.

The lecture addressed two core issues: the sustainability of Nigeria's national debt and the current administration's fiscal responsibility. Many Nigerians express concern over the country's borrowing, often believing it to be unsustainable. However, the argument presented was that the current debt levels are not solely attributable to the present administration but are also a consequence of the N30 trillion in 'Ways and Means' from the preceding government. The perceived increase in the Naira value of Nigeria's debt is largely a reflection of the currency's depreciation, which has since shown signs of recovery.

My perspective on debt sustainability suggests that Nigeria's debt management has been effective since the establishment of the Debt Management Office in 2000. The country's debt indices and measurements are generally favorable. Significant improvements have been made compared to the past, when states and local governments borrowed excessively without adequate oversight. Today, stringent requirements govern borrowing, and enhanced transparency through new media provides greater public scrutiny.

Nigeria's total debt currently stands at approximately N158 trillion (around $115 billion). With a Naira Gross Domestic Product (GDP) of about N435 trillion (roughly $340 billion), the Debt-to-GDP ratio hovers between 31% and 38%, which is considerably low compared to international benchmarks and peer nations. The Fiscal Responsibility Act suggests a ceiling of 60%, while ECOWAS and World Bank recommendations are around 70%. Furthermore, Nigeria's revenue- to-debt servicing ratio has significantly improved, dropping from 120% in 2022 to about 60% currently. Reforms in tax laws and improved revenue compliance are expected to further reduce this figure. A crucial point is that considerable wealth exists within Nigeria, but tax and revenue compliance remains a challenge, with many citizens benefiting from public services without contributing their fair share.

Key data points shared included:

1\. Nigeria's total debt is approximately N158 trillion ($115 billion).

2\. Domestic debt constitutes 53% of the total, with foreign debt at 47%.

3\. The Federal Government accounts for 93% of the total debt, while states bear 7%.

4\. The N30 trillion previously held on the Central Bank's balance sheet is now part of the national debt, marking a step towards fiscal accountability.

5\. At around 40% of GDP, Nigeria's debt is considered sustainable, well within regulatory limits.

6\. Africa's share of global debt is minimal, suggesting potential for increased borrowing for economic development, though systemic discrimination in global credit markets may be a factor.

Historical context reveals that national debts originated from financing wars and later infrastructure. In the U.S., debt repayment under President Andrew Jackson led to an economic downturn, underscoring that nations are not always expected to fully repay debts but to manage them sustainably for liquidity and growth. Nigeria's recorded debt dates back to the colonial era, with significant issues arising in the Second Republic, leading to a debt crisis and subsequent debt forgiveness efforts. Notably, Nigeria paid $12 billion cash for a write-off in 2006.

Nigeria remains a minor player in global credit markets, with both national and private debt levels relatively low compared to advanced economies. While this offers advantages, it also points to a cash-reliant economy that needs modernization. Within Africa, Nigeria's foreign debt is substantial but comparatively manageable given the economy's size.

A significant observation is that Nigerian states have reduced their debts and many have not borrowed recently, despite the Federal Government carrying 93% of the national debt. The article argues that states should be more proactive in financing development, such as infrastructure projects and agro-processing zones, through Public Private Partnerships (PPPs). While some states have seen significant budget increases without substantial borrowing, the Federal Government's budget growth, particularly in dollar terms, has been less pronounced. This imbalance places a disproportionate risk on the federal level.

Debt sustainability is multifaceted, involving repayment capacity, borrowing purpose, fiscal frameworks, interest rates, and debt composition. Fiscal responsibility encompasses transparency, revenue generation, safety nets, and institutional strength. Nigeria, like other nations, is on a journey to improve these aspects, with South Africa cited as an example of high transparency standards.

The national budget, even at N68 trillion for 2026, remains low per capita. The aspiration should be for budgets that reflect future ambitions rather than past limitations. Reforms aimed at formalizing the informal economy are crucial for boosting revenue, enabling greater investment in development. States must actively participate in financing and taking on risks alongside the federal government.

Recommendations for the future include strengthening institutions, continuous public engagement on debt and budgets, prioritizing cash-flow generating projects, focusing on infrastructure to combat poverty, and adopting long-term thinking. Financing should be sought from diverse sources, including Islamic finance and partnerships with countries like China, which have supported Nigeria's infrastructure development. The focus should be on tangible projects with potential for revenue generation, even if profitability is not immediate.

Recent data suggests a significant increase in capital spending by sub- national governments, indicating greater capacity for infrastructure development. However, the article cautions against using short-term liquidity for long-term infrastructure, advocating for strategic leveraging. The states should collaborate on nationwide projects like rail systems and agro- processing zones to transform the economy and integrate rural areas. A more balanced debt burden sharing, perhaps a 75:25 federal-state ratio, is suggested, especially given the revenue allocation dynamics.

President Tinubu's tax reforms are timely and aim to bolster revenue, signaling a potential shift towards greater financial capacity. While asset sales are an option, asset leasing and optimization are preferred to avoid a 'fire sale' perception. Ultimately, addressing Nigeria's development challenges requires a collective effort, with states playing a more active and responsible role in financing and risk-bearing.