Debt service costs gulp 74% of FG’s revenue in Q1 2024

Story Highlights 

• In Q1 2024, debt servicing consumed about 74% of Nigeria’s federal revenue, amounting to N1.31 trillion out of the N1.76 trillion retained revenue.  

• This financial strain highlights the government’s ongoing challenges in managing debt, despite a reduction in fiscal deficit and overall expenditures. 

• Alarmingly, the high debt service costs overshadow spending on essential sectors like personnel and capital expenditures, signalling a need for urgent economic reforms to sustain growth and development. 

 Debt service costs have consumed about 74% of the federal government’s retained revenue in the first quarter of 2024. 

This is according to the latest quarterly statistical bulletin from the Central Bank of Nigeria (CBN).  

In Q1 2024, the federal government had a retained revenue of N1.76 trillion.

However, in the same period, debt servicing gulped N1.31 trillion, which is about 74% of the government revenue. 

This figure highlights the continuing financial strain on the government’s resources as it grapples with significant debt obligations.  

Only 29% of FG’s expenditures was for debt servicing 

Although debt servicing gulped 74% of the federal government’s revenue, it was only about 29% of the total expenditures for the period under review. 

While retained revenue was N1.76 trillion, an increase of 33.8% compared to the N1.32 trillion retained in the same period of 2023, there was a decrease in government expenditures by 12.9% from N5.28 trillion in Q1 2023 to N4.59 trillion by 2024. 

Just as there was a decrease in expenditures, there was also a decrease in fiscal deficit by 29% from N3.96 trillion in the Q1 of last year to N2.83 trillion in the same period this year. 

There was also a decrease in debt servicing spending by 33.5% from N1.97 trillion in Q1 2023, as debt servicing to revenue ratio was 149% in the first quarter of last year. 

Although there was a reduction in the ratio this year, the high percentage still shows the critical challenge of managing the country’s debt in a sustainable manner, as substantial portions of the revenue are directed towards servicing existing debts rather than development projects. 

Debt service costs overwhelm spending on personnel, capital expenditure 

The federal government spent more on debt servicing than it spent on personnel costs or capital expenditures. 

Personnel costs for Q1 2024 amounted to N1.15 trillion, an increase of 17.1% from the N978.11 billion spent in the same period last year. 

However, capital expenditure fell by 35.9% to N1.15 trillion in Q1 2024, from the N1.8 trillion recorded in the same quarter of 2023. 

This reduction in capital expenditure is concerning, as it suggests a cutback in investments in infrastructure and other long-term development projects. 

Capital expenditure is crucial for economic growth and development, and sustained reductions in this area could impede progress and affect the overall economic health of the nation. 

What you should know 

• Nairametrics earlier reported that Nigeria spent N7.8 trillion to service its debt obligations in 2023, a 121% increase compared to N3.52 trillion incurred in the previous year. 

• It was also reported that Nigeria spent about $1.12 billion on foreign debt service payments in the first quarter of 2024, highlighting the growing burden of external debt on the nation’s finances. 

• Data from the CBN revealed that debt service payments have been steadily rising over the past few years. In Q1 2023, debt servicing stood at $801.36 million, but in Q1 2024, it shot up by 39.7% to $1.12 billion. 

• Nairametrics further observed that Nigeria spent about 70% of its dollar payments to service external debts between January and March 2024. 

• According to data from the CBN, out of the $1.61 billion in total outflows made during this period, a substantial amount of $1.12 billion was directed towards servicing external debt. 

• This figure represents a hefty slice of the nation’s financial resources and indicates a significant increase from the previous year when it was 49% in Q1 2023. 

• In a statement, the World Bank expressed deep concern over the escalating debt service costs that are burdening developing countries worldwide. Indermit Gill, the World Bank’s Chief Economist, and Senior Vice President, emphasized the gravity of the situation, highlighting the potential for a widespread financial crisis if immediate and coordinated actions are not taken. 

• According to Gill, the combination of record-level debt and soaring interest rates has set many developing nations on a precarious path, one that could lead to economic distress and tough decisions regarding the allocation of resources. 

• The high debt service to revenue ratio reflects ongoing fiscal challenges and highlights the urgent need for strategic economic reforms to enhance revenue generation and reduce dependency on borrowed funds. 

• The growing debt burden continues to limit the government’s ability to allocate funds for critical development projects and public services, posing significant challenges to sustainable economic growth and stability. 

• The Debt Management Office (DMO) of Nigeria recently announced that the nation’s total public debt increased significantly to N121.67 trillion (approximately $91.46 billion) as of March 31, 2024.   

• According to a statement from the DMO, this figure encompasses the combined domestic and external debts of the Federal Government of Nigeria (FGN), the thirty-six state governments, and the Federal Capital Territory (FCT).   

• In comparison, the total public debt as of December 31, 2023, stood at N97.34 trillion (approximately $108.23 billion). This represents a substantial increase of N24.33 trillion or 24.99% within a three-month period.   
• However, the increase is driven majorly by naira devaluation, as the total debt was reduced in dollar terms by $16.77 billion or 18.34%  https://nairametrics.com/2024/07/22/debt-service-costs-gulp-74-of-fgs-revenue-in-q1-2024/