The Federal Government of Nigeria is set to exceed its domestic borrowing target for 2024 by a staggering ₦4trillion.
This overshoot represents an alarming 67% increase over the initially budgeted amount, highlighting the government's growing reliance on debt to finance its operations.
As President Bola Tinubu prepares to present the 2025 national budget to the National Assembly tomorrow, concerns are mounting over the sustainability of Nigeria's fiscal strategy.
The latest data reveals that by November 2024, the government had already borrowed over ₦8.93 trillion from domestic investors, far surpassing the planned ₦6 trillion for the entire year.
Analysts predict that total borrowing could reach an unprecedented ₦10trillion by the end of 2024.
The government's borrowing spree is largely driven by the need to finance a fiscal deficit that has ballooned to ₦9.05 trillion, with total expenditure pegged at ₦27.5 trillion against revenue expectations of ₦18.32 trillion.
To bridge this gap, the government has resorted to a mix of domestic and foreign borrowings, alongside proceeds from privatization.
Economists warn that the rapid increase in borrowing could have dire consequences for the broader economy. "The sharp rise in FG’s borrowing from domestic investors is inimical to the private sector as it makes it more costly for businesses to borrow," noted David Adonri, Executive Vice Chairman at Highcap Securities Limited. He added that the higher lending rates are fueling inflation, further increasing the cost of doing business in the country.
The Central Bank of Nigeria (CBN) has responded to the rising debt levels by steadily increasing the Monetary Policy Rate (MPR), which now stands at 27.5%, up from 18.75% in February.
This has led to a corresponding rise in interest rates on government securities, with the rate of 364-day Nigeria Treasury Bills (NTBs) climbing to 22.93% in November.
Despite these challenges, the government remains committed to its borrowing strategy, arguing that it is necessary to finance public infrastructure and boost economic growth.
However, experts caution that if the current pace of borrowing continues, Nigeria risks entering a debt trap, where new loans are needed merely to service existing obligations.
As the nation grapples with these fiscal challenges, the government's borrowing practices will come under intense scrutiny in the coming months. With more than ₦9trillion in borrowings planned for 2025, there is mounting pressure on the government to manage its debt sustainably and ensure that borrowed funds are used to promote long-term growth rather than merely covering recurrent expenses.
In conclusion, while the government's borrowing may offer short-term relief, there are growing concerns over the long-term impact on inflation, private sector lending, and the overall fiscal health of the country.
As Nigeria navigates these turbulent economic waters, all eyes will be on the government's ability to balance its borrowing needs with the imperative of sustainable economic development.
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