How Debt Servicing May Crowd Out Developmental Projects in Nigeria

Nigeria is classified as a highly indebted poor country (HIPC), and it is also the continent’s most indebted nation – according to the Center For Global Development. 

A highly indebted country such as Nigeria will, no doubt, continue to experience problems in managing and servicing its massive debt profile, which further has a profound implication on the country’s overall development.

As revealed by BudgiT, a civic-tech non-profit organisation, over N4trn of Nigeria’s N5.6trn Budget Deficit will be financed with new debts. How did we get here?

The undying urge of the government to always incur debts rather than reduce governance cost and avoid lavish expenditures has begun to manifest, with dire implication on the nation’s citizens. BudgiT revealed that “Nigeria’s 2021 budgeted debt servicing cost (i.e. the cost of repaying interest on past loans) which currently stands at N3.32trn will wipe out 41.63% – nearly half – of the country’s 2021 projected revenue of N7.99 trillion”—further constricting economic and financial space for the government. 

Comparatively, the projected amount for debt servicing is three times the cost incurred in 2015, which was N1.06trn. This unfortunate situation has left the nation with less money to carry out developmental projects, thereby forcing the government to incur more debts. If the government continues this way, it may get to a time when the government’s total revenue may not be sufficient for even half of the nation’s debt servicing obligations. 

Even though incurring debts is a global practice, however, when it’s not well managed with strict guidelines, the debt services would have a massive implication on the Financial Performance of the nation and its growth. Hence, there’s a need for the federal government to be proactive and embrace prudent spending to forestall the ugly scenario.