A new report from Price Waters and Coopers (PwC) has revealed that Nigeria may face challenges with its debt servicing in 2024 over volatility in the forex market.
This was contained in the PwC Nigeria Economic Outlook for 2024 which detailed the seven trends that will shape the Nigerian economy in 2024.
According to the report, public debt may remain elevated because of increased budget deficit for the year and fiscal while higher government spending may persist due to debt service obligations and managing substantial fiscal deficits.
Furthermore, the report noted that a drop in revenue may increase the deficit to GDP ratio from its high of 123% in the first quarter of 2023.
It further referenced a World Bank report where the bank warned without important fiscal reforms, the debt service to GDP ratio may rise to 160% by 2027.
- It stated, “The public debt stock of ₦87.9 trillion in Q3 2023 may increase further in 2024 due to the budgeted deficit of ₦9.18 trillion and proposed additional borrowing of ₦8.88 trillion in 2024.
- “Furthermore, if revenue shortfall occurs, the deficit to GDP may further increase. Though the debt stock to GDP is low at 37.1%, the debt servicing to revenue ratio remains high at 124% as of H1 2023.
- “Servicing external debt in 2024 may remain challenging due to exchange rate volatility and potential devaluation of the naira.”
More Insights
- In June last year, the Central Bank of Nigeria (CBN) announced the unification of the foreign exchange market which sent the exchange rate rising to almost N800/$ from $1/471.
- A report revealed that the external debt stock of state governments increased by 42% after the unification of the FX market in June. Prior to the CBN’s policy, the external debt stock of the 36 states and FCT stood at $4.56 converted to N2.01 trillion using the prior fixed exchange rate of the CBN.
- An increase in the exchange rate means Nigeria would have to cough out more naira to service her external debt which currently stands at $41.5 billion as of Q3, 2023.
- The naira has lost almost 100% of its value since the action of the CBN in June and according to exchange rate tracker, the naira traded at N891.90/$ on the official market and N1410/$1 on the parallel market.
