Nigeria national debt

The Nigeria national debt or simply national debt of Nigeria is the total amount of money that the Federal Government of Nigeria owes to its creditors, both domestic and external. The national debt is composed of two main components: debt held by the public and debt held by government accounts. Debt held by the public includes Treasury securities held by investors outside the federal government, such as individuals, corporations, the Central Bank of Nigeria, and foreign, state and local governments. Debt held by government accounts includes non-marketable Treasury securities held in accounts of programs administered by the federal government, such as the Nigeria Social Insurance Trust Fund. The national debt is measured as the face value of the outstanding Treasury securities at a given point in time.

The national debt of Nigeria is subject to a legal limit, known as the debt ceiling, which is determined by the National Assembly of Nigeria. The debt ceiling is the maximum amount of debt that the federal government can incur. As of February 2023, the debt ceiling was set at 40% of GDP.

The national debt of Nigeria has increased over time due to various factors, such as government spending, revenue, economic growth, inflation, exchange rates, and interest rates. The ratio of debt to gross domestic product (GDP) is often used as an indicator of the sustainability and solvency of the national debt. The debt-to-GDP ratio of Nigeria has fluctuated over the years, reaching a peak of 75% in 1991, following the Nigerian Structural Adjustment Program, and a low of 7.3% in 2008, after the Paris Club debt relief. As of November 2023, the debt-to-GDP ratio of Nigeria was 38.79%, which was below the average of 56.3% for Sub-Saharan Africa.

The national debt of Nigeria has implications for the country's economic and social development, as well as its relations with other countries and international organizations. The management of the national debt is the responsibility of the Debt Management Office (DMO), which was established in 2000 as an autonomous agency under the supervision of the Ministry of Finance. The DMO's mandate is to coordinate the government's borrowing activities, advise on debt policy and strategy, maintain a reliable database of the national debt, and promote the development of the domestic debt market.

Pre-independence
Nigeria's history of public debt dates back to the colonial era, when the country was under the rule of Britain. The first recorded instance of public borrowing by Nigeria was in 1923-1924. This financial arrangement amounted to approximately £5.7 million, carrying an annual interest rate of 2.5 per cent, and was structured for repayment over a 20-year period.

In 1927, the Nigerian Protectorate issued another £1 million loan from the Bank of England, this time to finance the construction of the Lagos–Port Harcourt Railway. The loan was also guaranteed by the British government, and was repaid in 1938.

Progressing into the late 1930s, Nigeria acquired an additional loan of £4.89 million by the end of 1936, resulting in the country's cumulative public debt reaching about £9.89 million. Subsequently, from 1946 to 1948, Nigeria obtained an additional £5.74 million, further elevating the nation's total debt burden to £21.24 million by the conclusion of 1952.

In 1958, the Nigerian Protectorate issued a £28 million loan from the International Bank for Reconstruction and Development (IBRD), also known as the World Bank. The loan was the first World Bank loan to Nigeria, and was used to finance the expansion of the Kainji Dam and the Ughelli Power Station. The loan was repaid in 1978.

As colonial rule drew to a close, Nigeria's aggregate debt stock stood at approximately £17 million. Post-independence, despite a strategic shift toward internal fund generation, Nigeria sought financial support from the Paris Club of Creditors. This subsequent loan amounted to around $31 million, carrying an interest rate of 3.5 per cent per annum and a repayment period spanning two decades.

Post-independence
After Nigeria gained its independence from Britain in 1960, the country continued to borrow from various sources, both domestic and external, to finance its development needs. The main sources of external borrowing were the World Bank, the International Development Association (IDA), the International Monetary Fund (IMF), the African Development Bank (AfDB), the European Economic Community (EEC), and bilateral creditors, such as the United States, Britain, France, Germany, Japan, and China. The main sources of domestic borrowing were the Central Bank of Nigeria, the Nigerian Industrial Development Bank (NIDB), the Nigerian Agricultural and Cooperative Bank (NACB), and the Nigerian Bank for Commerce and Industry (NBCI).

The national debt of Nigeria increased significantly in the 1970s and 1980s, Nigeria's external debt alone soared to a staggering $14.8 billion, with approximately $6.3 billion owed to the Paris Club of Creditors. This was also due to several factors, such as the Nigerian Civil War (1967-1970), the 1973 oil crisis, the 1979 energy crisis, the Second oil price shock, the structural adjustment programs (SAPs), the 1980s oil glut, the 1986 Naira devaluation, and the oil price collapse of the late 1980s and early 1990s. The debt-to-GDP ratio of Nigeria rose from 5.6% in 1960 to 75% in 1991, reaching a peak of US$35.9 billion.

The period between 1986 and 1993 witnessed a sharp rise in Nigeria's external debt, marking the onset of challenges in debt servicing that persist today.

Economists pinpoint 1985 as a crucial period when Nigeria's total external debt reached about $19 billion.

The national debt of Nigeria declined in the 1990s and 2000s, due to various factors, such as the democratization of Nigeria in 1999, the Heavily Indebted Poor Countries (HIPC) initiative, the Multilateral Debt Relief Initiative (MDRI), the Paris Club debt relief, the Extractive Industries Transparency Initiative (EITI), the Nigeria Sovereign Investment Authority (NSIA), and the Excess Crude Account (ECA).

By the end of 2004, the Nigerian government's outstanding external debt had surged to almost $36 billion.

In 2005, Nigeria faced an unsustainable debt scenario, with a total revenue of around $9 billion and a debt portfolio of approximately $36 billion. A turning point emerged in late 2005 through agreements with the Paris Club of Creditors and London, allowing Nigeria to buy back about $30 billion of its $32 billion external debts through a one-time cash payment of $12 billion.

Olusegun Obasanjo, in his 2001 budget speech, highlighted the gravity of Nigeria's debt burden, which, after negotiations, resulted in a pegged debt service of one billion US dollars for 2001. The historic agreement under President Obasanjo removed Nigeria from the list of the world's most poorly rated countries.

Despite this agreement, domestic debt, estimated at around N1.52 trillion during that period, did not witness substantial reduction.

The debt-to-GDP ratio of Nigeria fell from 75% in 1991 to 7.3% in 2008, reaching a low of US$20.6 billion.

The national debt of Nigeria increased again in the 2010s and 2020s, due to various factors, such as the 2010s oil glut, the COVID-19 pandemic, the End SARS protests, the 2021 Nigerian economic crisis, the 2021 Nigerian Twitter ban, and the 2023 Nigerian general election.

As of April 2011, the domestic debt of Nigeria had escalated to N4.8 trillion (approximately $30 billion). This debt had several components: Federal Government Bonds (N3.06 trillion), Nigerian Treasury Bills (N1.44 trillion), and Treasury Bonds (around N372.9 billion). Conversely, the external debt was estimated to be about $4.1 billion.

In 2018, the Nigerian government debt-to-GDP ratio is estimated to be in the region of 24.1 per cent. Then it rose from 7.3% in 2008 to 38.4% in June 2023.

Several factors contributed to Nigeria's rising debt, including overreliance on external debts for project financing, increased public sector workforce leading to higher salary bills, and poor investments due to unrealistic economic policies. The public debt burden in Nigeria comprises two major sources: internal or domestic debt and external or foreign debt. The Debt Management Office (DMO), established by the Debt Management Office (Establishment) Act, 2003, plays a crucial role in coordinating and managing the country's debt stock, both internal and external.

Debt composition
The national debt of Nigeria is composed of two main components: domestic debt and external debt. Domestic debt is the debt owed by the federal government to creditors within the country, such as the Central Bank of Nigeria, commercial banks, pension funds, insurance companies, and other financial institutions. External debt is the debt owed by the federal government to creditors outside the country, such as multilateral institutions, bilateral governments, and private lenders.

As of June 2023, the total national debt of Nigeria was US$113.4 billion, of which US$70.3 billion (61.95%) was domestic debt and US$43.2 billion (38.05%) was external debt. The domestic debt was mainly composed of Nigerian Treasury Bills (NTBs), Nigerian Treasury Bonds (NTBs), Federal Government of Nigeria Savings Bond (FGNSB), Sukuk Bond (Islamic bond), and Green Bond (environmental bond). The external debt was mainly composed of loans from the World Bank, the IDA, the IMF, the AfDB, the EEC, and bilateral creditors.

Debt management
The management of the national debt of Nigeria is the responsibility of the Debt Management Office (DMO), which was established in 2000 as an autonomous agency under the supervision of the Ministry of Finance. The DMO's mandate is to coordinate the government's borrowing activities, advise on debt policy and strategy, maintain a reliable database of the national debt, and promote the development of the domestic debt market.

The DMO operates under the guidance of the National Economic Council (NEC), which is the highest economic policy-making body in the country, chaired by the Vice President of Nigeria. The NEC approves the annual borrowing plan of the federal government, which specifies the amount, sources, terms, and purposes of borrowing for each fiscal year. The NEC also approves the Medium-Term Debt Management Strategy (MTDS), which is a four-year plan that outlines the objectives, targets, and strategies for managing the national debt.

The DMO implements the annual borrowing plan and the MTDS in accordance with the Fiscal Responsibility Act of 2007, which provides the legal framework for fiscal management and accountability in the country. The Act stipulates that the federal government's borrowing shall be for capital expenditure and human development only, and that the debt-to-GDP ratio shall not exceed 40%. The Act also requires the DMO to submit quarterly and annual reports on the national debt to the President of Nigeria, the National Assembly of Nigeria, and the public.

The DMO collaborates with various stakeholders in the management of the national debt, such as the Ministry of Finance, the Central Bank of Nigeria, the Office of the Accountant-General of the Federation, the Office of the Auditor-General of the Federation, the Revenue Mobilization Allocation and Fiscal Commission, the Budget Office of the Federation, the National Planning Commission, the National Bureau of Statistics, the Securities and Exchange Commission, the Nigerian Stock Exchange, and the Association of Issuing Houses of Nigeria.

The DMO also engages with various international organizations and partners in the management of the national debt, such as the World Bank, the IDA, the IMF, the AfDB, the EEC, the Organisation for Economic Co-operation and Development (OECD), the Commonwealth Secretariat, the United Nations Conference on Trade and Development (UNCTAD), the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), the West African Institute for Financial and Economic Management (WAIFEM), and the African Forum and Network on Debt and Development (AFRODAD).

Debt sustainability
The sustainability of the national debt of Nigeria is the ability of the country to meet its current and future debt obligations without compromising its economic growth, social development, and environmental protection. The sustainability of the national debt depends on various factors, such as the size, structure, and composition of the debt, the level and growth of GDP, the fiscal balance and revenue mobilization, the exchange rate and inflation, the interest rate and debt service, the external and domestic shocks, and the institutional and policy environment.

The DMO conducts regular debt sustainability analysis (DSA) to assess the sustainability of the national debt and to identify potential risks and vulnerabilities. The DMO uses various tools and methodologies for the DSA, such as the Debt Sustainability Framework (DSF) for low-income countries, developed by the World Bank and the IMF, the Debt Management Performance Assessment (DeMPA) tool, developed by the World Bank, and the Medium-Term Debt Management Strategy (MTDS) tool, developed by the World Bank and the IMF.

The DMO publishes the results of the DSA in its annual reports and on its website. The DMO also shares the results of the DSA with the relevant authorities and stakeholders, such as the NEC, the Ministry of Finance, the Central Bank of Nigeria, the National Assembly, and the public. The DMO uses the results of the DSA to inform its debt management strategy and to advise the government on its borrowing policy and strategy.