•Shifts borrowing preference to TBs amidst high interest rates
•Deficit to escalate as oil revenue underperforms
•Analysts disagree over impact of GDP rebasing on debt ratio
In spite of mounting concerns over the huge level of the country’s public debt, and the severe impact of rising cost of debt servicing on the economy, the Federal Government, FG, increased borrowing from domestic investors to N10.85 trillion in the first four months of the year.
Nigeria’s total public debt rose by 48.6 per cent to N144.66 trillion in 2024, from N97.34 trillion in 2023, with the Federal Government accounting for 95 per cent or N137.28 trillion.
As a result, the FG spent 150 per cent of its total revenue in 2024 on debt service, representing a sharp increase from 65 per cent in 2023.
Data by the Debt Management Office, DMO, revealed that domestic debt service cost rose by 12 per cent, Year-on-Year, YoY, to N5.9 trillion in 2024 while external debt service cost rose YoY by 33 per cent to $4.7 billion from $3.5 billion in 2023.
This also led to deterioration in the country’s Debt-to-GDP ratio to 52.9 per cent in 2024 from 48.7 per cent in 2023. The Debt-to-GDP ratio is a key measure of Debt Sustainability, which refers to the economy’s capacity to manage its debt obligations without defaulting or needing external assistance.
The upward trend in the total public debt and debt servicing cost may persist given the rise in Federal Government’s domestic borrowing in the first four months of the year, January to April (4M’25).
Domestic borrowing
Financial Vanguard’s findings in the FGN Bond auctions by the DMO and Treasury Bills (TB) auctions by the Central Bank of Nigeria, CBN, showed that the total borrowing by the FG from domestic investors increased by 0.7% to N10.85trn in 4M’25 from N10.767 trillion in the corresponding period of 2024, 4M’24.
The increase was driven by increases in borrowings through TBs, and through the FGN Savings Bonds, which offset decline in borrowing through FGN Bonds.
Further analysis showed that FG’s borrowing through TBs rose by 8.3 per cent to N8.377 trillion in 4M’25 from N7.74 trillion in 4M’24.
FG’s borrowing through TBs stood at N1.872 trillion in January but rose by 26 per cent month-on-month, MoM, to N2.36 trillion in February. The upward trend continued in March when borrowing through TBs rose MoM by 11 per cent to N2.61 trillion before declining by 41 per cent MoM to N1.537 trillion in April.
Financial Vanguard findings also showed that borrowing through the FGN Savings Bonds rose 49.5 per cent to N17.29 billion in 4M’25 from N11.56 billion in 4M’24.
In January borrowing through the Savings Bonds stood at N4.313 billion. This fell slightly by 3.2 per cent MoM to N4.18 billion in February. In March borrowing through Savings Bonds rose 6.8 per cent MoM to N4.46 billion but fell by 2.7 per cent MoM to N4.34 billion in April.
Investors remain bullish
Amidst the rising appetite for domestic borrowing the investors are equally expressing large appetite to lend to the FG through over-subscription to the instruments.
Total bond offered by the DMO during the four months stood at N1.45 trillion while the demand (public subscription) stood at N3.33 trillion.
In January, the DMO offered N450 billion bonds to investors. Total subscription to the offer stood at N670 billion while total amount allotted stood at N601 billion. In February, total bonds offered stood at N350 billion while the investment public demand stood at N1.63 trillion but the DMO allotted N910.39 billion.
Total bonds offered in March stood at N350 billion, while public demanded for N530.31 billion but the DMO allotted N423.68 billion. In April, public subscription to the N350 billion bonds offered by the DMO stood at N495.95 billion, whileN520.9 billion was allotted.
IMF warns
The rise in FG’s domestic borrowing in 4M’25 is in total disregard to the advice of the International Monetary Fund, IMF, that governments should adjust their spending to reduce debt, so as to minimise impact of ongoing global tariff war.
While projecting that global public debt will increase by 2.8 percentage points this year and hence push debt levels above 95 percent of global GDP, the IMF, in its Fiscal Monitor April 2025 report said: “Fiscal policy should prioritize reducing public debt and establishing and widening buffers to address spending pressures and economic shocks”.
With respect to Nigeria, the IMF, though projected slight decline in Nigeria’s debt-to-GDP ratio to 52.5 per cent in 2025 from 52.9 per cent last year, however projected that Nigeria’s Fiscal Deficit-to-GDP will worsen to 4.5 per cent this year from 3.4 per cent last year.
Consequently, the IMF called for greater efficiency in government spending in Nigeria to minimize the impact of increased global uncertainties on government borrowing and public debt.
Making this call, at the press briefing on the April 2025 IMF Fiscal Monitor report released on the sidelines of the ongoing Spring Meetings of the IMF and the World Bank, Deputy Division Chief of the Development Macroeconomic Division in the IMF Research Department, Davide Furceri, said: “It’s important to create additional fiscal space. In Nigeria’s case, that means focusing on two things: first, boosting revenue through improved mobilization efforts, and second, scaling up spending in key areas like social protection and investment.
“We understand that many countries, including Nigeria, face pressing spending needs. But spending must be done wisely. This means stronger prioritization and greater efficiency in how resources are allocated.”
Analysts’ comments
Analysts who spoke to Financial Vanguard on the IMF projection for Nigeria, said that an increase in the nation’s GDP will lead to a slight improvement in the Debt-to-GDP ratio. They however averred that the continued upward trend in FG’s borrowing will lead to a higher fiscal deficit and debt service cost.
In a review of the fiscal activities of the FG in January, analysts at FBNQuest Merchant Bank noted that debt service-to-revenue, worsened, MoM to 144 per cent in January from 44 per cent in December.
Consequently they warned, “The escalating cost of debt service highlights the pressure of debt obligations on the FGN’s strained finances and continues to raise concerns regarding debt sustainability.
Looking ahead, we anticipate ongoing pressure on government finances due to underwhelming oil production levels, which currently stand at around 1.6mbpd (including condensates), well below the 2.1mbpd assumed in the 2025 budget.
“Given the subdued revenue outlook, a sustained narrowing of the fiscal space may result in the fiscal deficit exceeding the N765billion monthly target envisaged in the budget in the coming months, complicating efforts to keep full-year deficit levels in check”.
Explaining why the upward trend may not lead to higher Debt-to-GDP ratio, Tunde Abidye, who is the Head of Equity Research at FBNQuest Merchant Bank, said: “The ratio uses GDP as a denominator. As such, it simply reflects the expected growth in nominal GDP. If GDP expands, the ratio will be smaller.”
Speaking in the same vein, Nnamdi Nwizu, Co Managing Partner, Comercio Partners, said, “Though we have seen an uptick in borrowing, the government is aggressively trying to increase revenue and local activities, which will invariably drive GDP growth.
Explaining, Prof Uche Uwaleke, Chairman, Association of Capital Market Academics of Nigeria, ACMAN, said: “The projection of a decline in debt-to-GDP ratio may not be unconnected with the ongoing efforts by the government of Nigeria to rebase the country’s GDP. “The outcome of the exercise is most likely to be a higher GDP for Nigeria which should translate to a lower debt-to-GDP ratio.
However, David Adonri, Analyst and Vice Executive Chairman at Highcap Securities Limited, warned that in spite of the expected increase in GDP and anticipated lower Debt-to-GDP, increase in borrowing will lead the country to financial embarrassment.
He said: “Notwithstanding the headroom for debt in relation to GDP, the stress on FGN comes from the overwhelming debt service ratio which technically consumes public revenue. With the declining price of crude oil and anticipated negative impact on public revenue, refusal of the government to run a balanced budget will definitely lead to financial embarrassment to the country.”
The analysts however hinted that the dominance of TBs in FG’s domestic borrowing activities in 4M’25, which is encouraged by investors’ preference, will help to reduce debt service cost in the longer time.
According to Mallam Garba Kurfi, CEO, APT Securities Limited, “Borrowing through Bonds has reduced because of the high rate of interest and is always for long term, but borrowing through TBs is for short term, and whatever the rate will not last more than a year. So it is better for the FGN in view of the fact that rates may likely cash.
Nnamdi Nwizu of Comercio Partners, said, “We have noticed reluctance by the DMO to issue long term instruments due to the high interest rate environment, which naturally means high cost of debt funding. This strategy makes sense as rather than lock in 30 year debt at a high rate, it makes sense to issue Treasury bills, whilst they wait for rates to drop.
“It probably makes sense for the DMO to do short duration instruments in an environment where interest rates are high, as opposed to locking in high yields on a longer term basis”.
“It may also be due to investor appetite for near term securities due to the uncertain market outlook”, said, Tunde Abidoye of FBNQuest Merchant Bank,
Similarly, Ayokunle Olubunmi, Analyst/ Head Financial Institutions Ratings at Agusto & Co, said: “The anticipated decline in the interest rate prompted the focus on short dated securities such as treasury bills.
“Investors have also taken advantage of the high yield environment to optimise returns on their investment portfolio.” (Vanguard)
