Nigeria will face a worsening debt burden in the coming year as the Federal Government has projected a rise in the debt-to-GDP (gross domestic product) ratio to 60 per cent by 2027.
The country currently has a debt-to-GDP ratio of 52.25 per cent as of December 2024, now expected to rise by 7.75 per cent.
Economic watchers say this would amount to higher inflationary pressure and create more currency problems for Nigeria, which could see Nigeria pay higher cost to service borrowed funds and trapped in debt.
With the debt surge, there are also growing fears of sovereign default, the possibility that Nigeria might struggle to meet its debt obligations.
Nigeria’s fiscal position has deteriorated significantly over the past decade, with public debt rising, driven largely by currency devaluation and persistent fiscal deficits.
“FGN’s public debt has continued to skyrocket. In just two years of this administration, the debt has doubled what the previous administration accumulated in eight years,” says Adonri,”Vice Chairman at Highcap Securities, David Adonri, said.
“While the naira-denominated debt may be covered with Ways and Means (central bank financing) at the risk of hyperinflation, escalating foreign debt must be extinguished with hard currency, which may not be available when needed. That is the real threat; a sovereign default could occur if this pace of foreign borrowing continues unchecked. We are already in a debt trap, borrowing new funds to pay old debts. If the federal government doesn’t de-leverage soon, insolvency could be imminent.”
A debt-to-GDP ratio is used to measure a country’s debt as a percentage of its GDP, which indicates its ability to repay its debt.
While a low ratio suggests a stronger economy and greater capacity to meet debt obligations, a high ratio signifies a heavier debt burden and potential repayment difficulties.
In a recent disclosure, the Debt Management Office (DMO) said that Nigeria’s debt-to-GDP ratio will rise to 60 per cent by 2027.
(ICIR)
