A recently released quarterly statistical bulletin of the Central Bank of Nigeria (CBN) has revealed that the country’s debt servicing increased to N1.31 trillion, accounting for 74 percent of the total revenue retained in the first quarter (Q1) of 2024.
It also disclosed that Nigeria recorded N1.76 trillion in revenue in Q1 2024, representing a 33.8 percent increase from the N1.32 trillion recorded in Q1 2023, an amount higher than the spending on personnel and capital expenditures, amounting to N1.15 trillion.
The rise in high debt servicing payments is attributable to high interest rates on non-concessional loans, which reduces fiscal space and limits the country’s ability to invest in critical areas that will lead to long-term growth.
In its Nigeria’s Economic Update, the Centre for the Study of Economies of Africa (CSEA) projects that the country’s high debt level, coupled with increase in Monetary Policy Rate (MPR) and several other economic issues, could lead to economic distress, hence, it is pertinent for the Federal Government to limit high interest-bearing loans.
CSEA also argued that since the cost of borrowing from non-concessional lenders is conditioned on the country’s sovereign rating by prominent Credit Rating Agencies (CRAs), there is the need for the government to prioritize policies that will improve the country’s rating from junk, stressing that more importantly, it is critical for the country to establish a revenue-generating structure as debt and borrowing have reached unprecedented and unsustainable levels.
Following the trend, the International Monetary Fund (IMF) revised Nigeria’s Gross Domestic Product (GDP) growth forecast for 2024. In the July edition of the World Economic Outlook, the IMF retained its 2024 and 2025 global economic growth projections at 3.2 percent and 3.3 percent respectively, as earlier projected in April.
At the country level, the IMF, however, downgraded the growth projections of some countries, including Nigeria, adding that the economy’s Q1 2024 performance fell short of the IMF’s expectations, leading to the downgrade, implying that the IMF predicts a slower growth rate for Nigeria compared to its April forecast.
The IMF revised Nigeria’s growth outlook downward by 0.2 percentage points from 3.3 percent to 3.1 percent. However, it retained Nigeria’s projected growth rate at 3.0 percent for 2025. The Nigerian economy’s downward forecast further impacted Sub-Saharan Africa’s overall growth forecast from 3.8 percent to 3.7 percent due to several factors, including external and domestic ones.
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The external factor is the slowing down of global growth, mainly due to the monetary tightening policy of central banks and slower GDP growth in China. The domestic factors include the hike in the monetary policy rate, fluctuation in the foreign exchange and continued low crude oil production. The IMF revision is coming a few weeks after the World Bank affirmed a 3.3 percent growth projection for Nigeria in 2024.
The World Bank’s affirmation suggests some optimism, indicating that Nigeria can still achieve significant economic progress with the right policies and reforms. Further, there is an urgent need for the government to tackle the oil sector’s underperformance and enhance the business environment by investing in infrastructure that boosts business productivity.
Meanwhile, the CBN’s Monetary Policy Committee (MPC) at its 296th meeting raised the MPR to 26.75 percent, representing a 50 basis points increase from 26.25 percent in May 2024.
The increment in MPR reflects the central bank’s attempts to control inflation and stabilize the exchange rate through monetary tightening measures. With this new decision, the CBN has increased the MPR by 800 basis points since January 2024.
In January, before the hike, the rate was 18.75 percent. The committee also resolved to keep the liquidity ratio at 30 percent and the Cash Reserve Ratio (CRR) for merchant and deposit money banks at 14 percent and 45 percent respectively.
Despite these steps to control inflation, the Consumer Price Index (CPI) for June 2024 increased to 34.19 percent, indicating that Nigeria’s pricing levels are interest insensitive.
This suggests that supply-side factors such as insecurity, high cost of energy, and currency depreciation are more responsible for Nigeria’s rising inflation rates.
Therefore, the CBN, in collaboration with the fiscal side of the government, should prioritize fixing these underlying structural challenges as the MPR has not effectively controlled inflation. Continuous increments in the MPR could have detrimental effects on the economy through high borrowing costs.
