Nigeria’s government is on a borrowing spree! To keep the country running, they’ve borrowed a staggering N5.84 trillion in 2024. But is this the best path forward? This article breaks down the details and what it means for you.
Here’s a quick rundown of what we’ll cover:
- Nigeria’s N5.84 trillion borrowing via FGN bonds in 2024
- A slight dip compared to the 2023 borrowings
- The significant 2024 budget deficit of N9.18 trillion
- How pension funds are playing a crucial role
- Experts’ opinions on the sustainability of this strategy
Nigeria’s 2024 Borrowing Spree
The Nigerian government has been actively raising funds through the FGN bond market, borrowing a hefty N5.84 trillion in 2024. This move is aimed at bridging the significant budget deficit for the year. It’s like using a credit card to cover expenses – but on a national scale! The Debt Management Office (DMO) has been the key player, issuing bonds to investors eager for a relatively secure investment.
Slight Dip from 2023, But Still Massive
While N5.84 trillion is a massive amount, it’s actually a slight decrease (0.17%) from the N5.85 trillion borrowed in 2023. It seems like the government is trying to ease up on borrowing, even if just a little. Interestingly, the DMO aimed to raise N5.72 trillion, but investors’ demand reached N7.09 trillion, highlighting a strong interest in these risk-free bonds.
Why the Borrowing Frenzy?
So, why does Nigeria need to borrow so much? The 2024 budget has a substantial deficit of N9.18 trillion. This means the government is spending far more than it’s earning. This deficit is equivalent to 3.88% of the nation’s GDP. To put it in perspective, this is a smaller deficit than the N13.78 trillion (6.11% of GDP) recorded in 2023. The government plans to finance this deficit through a mix of new borrowings, privatization proceeds, and international loans.
Here’s a table that illustrates the key figures for this year’s budget:
| Item | Amount (Trillion NGN) |
|---|---|
| Total Budget Size | 27.5 |
| Budget Deficit | 9.18 |
| New Borrowings | 7.83 |
Pension Funds: A Major Player
Pension funds administrators (PFAs) have been actively participating in the FGN bond market. As of October 2024, their portfolio in FGN bonds increased to a staggering N13.57 trillion. This demonstrates the crucial role pension funds play in supporting the government’s financial needs, and further shows the confidence in FGN bonds as a low-risk investment.
What Experts Say
Analysts are split on whether this borrowing is a good idea. Some believe that the high yields on FGN bonds attract investors and show confidence in the government’s ability to repay its debts. The fact that these bonds are relatively low risk also makes them attractive. However, others are concerned about the country’s rising debt profile, with some warning that it’s becoming unsustainable. There is also concern among investors on whether they are getting enough yield, given the country’s high inflation rate.
According to Dr Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Nigeria is choosing the domestic market route for borrowing due to the volatility and foreign exchange issues associated with international markets.
Is Nigeria’s Debt Sustainable?
Nigeria’s low revenue-to-GDP ratio of less than 10 percent means the government relies heavily on borrowing to meet its financial obligations. This raises serious questions about the long-term sustainability of this approach. The government’s 2025 budget proposal indicates a continued reliance on borrowing to finance a N13 trillion deficit. The big question is: how long can Nigeria keep borrowing before it becomes a huge burden on the economy?
