A report from Price Waters and Coopers (PwC) suggests that Nigeria may encounter difficulties in servicing its debt in 2024 due to the volatility in the foreign exchange market. The PwC Nigeria Economic Outlook for 2024 outlines seven trends that could shape the country’s economy in the coming year.
According to the report, Nigeria’s public debt may remain elevated due to an increased budget deficit for the year, fiscal challenges, and higher government spending associated with debt service obligations. The report also notes that a potential drop in revenue could raise the deficit-to-GDP ratio from its high of 123% in the first quarter of 2023.
The report references a World Bank warning that without significant fiscal reforms, the debt service-to-GDP ratio may rise to 160% by 2027. The public debt stock in Q3 2023 stood at ₦87.9 trillion, and it may increase further in 2024 due to a budgeted deficit of ₦9.18 trillion and proposed additional borrowing of ₦8.88 trillion.
Key insights from the report include:
- Increased Debt Stock: The public debt stock is expected to increase in 2024 due to the budgeted deficit and proposed additional borrowing.
- Deficit to GDP Ratio: A potential revenue shortfall could further increase the deficit-to-GDP ratio.
- High Debt Servicing to Revenue Ratio: Despite a low debt-to-GDP ratio of 37.1%, the debt servicing-to-revenue ratio remains high at 124% as of H1 2023.
- Challenges in Servicing External Debt: Servicing external debt in 2024 may pose challenges due to exchange rate volatility and the potential devaluation of the naira.
The report highlights concerns about the impact of the Central Bank of Nigeria’s (CBN) decision to unify the foreign exchange market in June of the previous year. The subsequent increase in the exchange rate means that Nigeria would need to allocate more naira to service its external debt, which stood at $41.5 billion as of Q3 2023.
The significant depreciation of the naira, losing almost 100% of its value since the CBN’s policy change, underscores the challenges faced in managing external debt and servicing obligations amid exchange rate volatility.
