Amid concerns over Nigeria’s rising debt profile, the Central Bank of Nigeria (CBN) has revealed that government borrowing surged by N11.33tn in August, representing a 57.11% increase from the previous month.
Credit to the Federal Government stood at N31.15tn, up from N19.83tn in July, marking one of the largest monthly jumps in recent years.
This sharp increase underscores the government’s growing reliance on the CBN to meet fiscal obligations, raising red flags among economists and financial analysts who warn that the nation may be spiraling toward a debt crisis.
The new figures were contained in the CBN’s latest Money and Credit Statistics report, which highlighted fluctuating borrowing patterns by all tiers of government over the past months.
Between April and August, the government’s credit pattern oscillated significantly. After hitting N33.93tn in February, it dropped to N19.59tn in March before rebounding to N23.93tn in June.
The August figure marks a return to the worrying upward trajectory, reflecting an over-reliance on borrowing for funding capital projects, debt servicing, and recurrent expenditures.
The private sector, which is often the engine of economic growth, is also feeling the pinch of the government’s borrowing binge. Credit to the private sector dipped by N777.13bn in August, standing at N74.73tn compared to N75.51tn in July.
The decline, according to experts, is a sign that increased government borrowing is crowding out private investments, limiting the private sector’s capacity to expand and generate jobs.
As the government’s borrowing spree continues, Nigeria’s total public debt has ballooned, reaching N121.67tn by June 2024, according to the Debt Management Office (DMO).
This figure represents a 24.99% increase from December 2023 and includes both domestic and external debts accrued by the Federal Government, state governments, and the Federal Capital Territory.
With the debt burden escalating, many fear that the country’s debt servicing obligations will soon outpace revenue generation, leaving the government in a precarious position. “Nigeria is already spending over half of its revenue on debt servicing.
The current borrowing trend, if left unchecked, could push us into a full-blown fiscal crisis where we are unable to fund critical sectors such as health, education, and infrastructure,” Olubunmi added.
The CBN’s efforts to manage inflation through monetary policy have yet to yield the desired results. In an attempt to curb liquidity and stabilize the naira, the Monetary Policy Committee (MPC) recently raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25%, marking the fifth consecutive rate hike this year.
Additionally, the cash reserve ratio (CRR) for commercial banks was increased to 50%, and for merchant banks to 16%, as part of broader efforts to tighten liquidity.
While these policies are intended to control inflation, they come at a cost. Financial experts at Afrinvest Research warn that higher interest rates and tighter liquidity could stifle economic growth by making it harder for businesses to access affordable credit.
“Nigeria is walking a tightrope. On one hand, the CBN needs to control inflation; on the other, excessive tightening of liquidity could cripple the private sector and halt economic growth,” Afrinvest said in its report.
The firm further emphasized the need for a more balanced approach to fiscal management, urging the government to stimulate private sector activity to achieve sustainable economic growth.
The rising debt and borrowing spree suggest a growing fiscal imbalance that, if not addressed, could have dire consequences for Nigeria’s economic future.
As borrowing dominates credit activities, it risks pushing the economy into deeper inflationary pressure while stifling private sector growth.
The CBN’s report is a clear signal that urgent action is needed. Policymakers must find ways to diversify revenue streams, reduce borrowing, and focus on long-term sustainable economic reforms to prevent a looming fiscal disaster.
While the Federal Government has expressed its commitment to fiscal reforms, the road ahead will require difficult decisions.
Analysts warn that unless bold steps are taken, Nigeria may soon find itself in an unsustainable debt trap, with little room for recovery.
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