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A leading economic expert, Mr. Adetilewa Adebajo, Chief Executive Officer (CEO), The CFG Advisory, has sounded the alarm on Nigeria’s escalating debt burden, warning that the country is heading towards a debt crisis similar to that of Ghana, Zambia, and Ethiopia.
He however, recommends a benchmark of ₦1,500-1,800 to the US dollar to ensure year-end value retention, citing the country’s unsustainable debt levels.
Nigeria’s current debt burden stands at $130 billion, with 95% of revenues dedicated to debt servicing, exceeding recurrent and capital expenditures.
Speaking on Thursday, at the Finance Correspondent Association Of Nigeria (FICAN) bi-monthly forum on the theme “Nigeria’s Fiscal Environment in an Era of Monetary Policy Tightening”, he said the 2024 budget deficit is expected to add a further $10 billion to the debt burden, raising concerns about the country’s ability to meet its financial obligations.
To this end, he urge the government to initiate debt restructuring discussions, both domestically and externally, to avoid imposition by the Paris and London Clubs.
Explaining the current state of Nigeria’s economic indicators, Adebajo regretted that the economy is still in stagflation, with ongoing reforms aiming to achieve a sustainable growth trajectory.
He noted that the introduction of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the removal of fuel subsidies has seen the FAAC account increase by 130 percent from May to November 2023 to over N1 trillion.
“FDI is at an all-time low of under US$1 billion; power transmission and distribution infrastructure are still very poor, impacting industry and economic growth; the macroeconomic situation has declined over the last 7 years with a loss of US$180-200 billion in GDP, currently at US$390 billion.
“GDP growth of 3 percent is not sustainable for our population of 200 million; Nigeria requires 8-10 percent GDP growth for sustainability; 135 million Nigerians are in the poverty trap, with 40 percent unemployment and very low job creation and industrial productivity. Dwindling reserves and increasing credit default swap premiums have resulted in Caa1 junk bond rating status for our international credit ratings,” the finance and economic expert stated.
“Moody’s positive outlook affirms the bold reforms ongoing in the Nigerian economy, but retains a Caa1 poor quality and high credit risk rating. The unchecked fiscal expenditure and the unauthorised ways and means financing, now over thirty times the limit at
=N= 30trillion, remains a key risk to Nigeria’s economic recovery out of stagflation to sustained growth in 2024.
According to him, despite sound economic fundamentals, Nigeria’s economic growth has been hindered by poor leadership in the past, noting however that, “with a new and highly rated economic management team in place, expectations are high for effective implementation of reform policies to drive the economy out of stagflation and achieve sustainable GDP growth targets.
He added that, the success of these efforts will be crucial in determining the future of Nigeria’s economy and the prosperity of its citizens.
Proffering solutions to the country’s economic challenges, the CFG Advisory boss stated that Nigeria should negotiate with creditors to restructure and extend the maturities of debt, allowing for more manageable repayments and reduced interest rates.
Nigeria, he said, should implement fiscal discipline by reducing non-essential government spending, eliminating wasteful subsidies, and improving the efficiency of public services.
“Expand the tax base, improve tax collection, and introduce new sources of revenue, such as value-added tax (VAT) and property taxes. Improve transparency and accountability in government spending to build public trust and attract foreign investment. The central bank should continue to employ tight monetary policy to combat inflation, which is often associated with stagflation.
“Maintain positive real interest rates to attract foreign investment and encourage savings. Maintain a competitive exchange rate to stimulate exports and reduce reliance on imports. Collaborate with regional and international organizations to access financial assistance, expertise, and market opportunities. Engage with the public, businesses, and civil society to gain their support for economic reforms,” Adebajo recommended.
