The President Bola Tinubu-led Federal Government may borrow an additional N7.24 trillion in 2024 to fund an intervention plan aimed at reviving its economy.
This was disclosed during a presentation on an Accelerated Stabilisation and Advancement Plan (ASAP) by Wale Edun, the minister of finance and coordinating minister of the economy. The plan seeks to resolve significant obstacles to the reform initiatives and promote growth across the economy.
The government’s 9.18 trillion deficit in the planned budget for 2024 would be partially covered by N7.83 trillion in fresh borrowing.
Nonetheless, the ASAP claims that in order to finance its deficit for the year, the government plans to borrow N9.18 trillion. The debt will increase by N7.24 trillion as a result of the intervention financing, totaling N16.42 trillion by 2024. The estimated cost of debt financing is N8.81 trillion.
As of December 2023, Nigeria’s total national debt was N97 trillion, according to the Debt Management Office. The additional borrowing will bring the total debt to N113.4 trillion. The government understands that the additive spending from the intervention money could have a negative impact on leverage measures if it is fully covered by increased borrowing alone. This higher borrowing is anticipated as a result of anticipated revenue shortfalls.
Due mainly to decreased crude oil production volumes, which operated at 74.5 percent of the budget projection, the Federal Government’s retained revenue for the months of January and February fell short of the objective by almost 60.0%. The government estimates that income for the year won’t likely surpass N15.8 trillion if these deficits continue.
It also made clear that budgeted revenue will drop by 3% if tax breaks totaling 0.25 percent of GDP are granted in order to fund the economic intervention. It stated, “Debt service and additional borrowing will increase by 7% and 79%, respectively, in 2024.
With a projected cost of N6.6 trillion to N5 trillion, the emergency intervention plan entails significant funding into vital areas like agriculture, energy, business support, health, and social welfare.
Emergency funds of N498 billion or N373.5 billion, energy of N3.25 trillion or N2.44 trillion, health and social welfare of N1.10 trillion or N825 billion, and business support of N1.80 trillion or N1.35 trillion will be needed to ensure agricultural and food security.
The goals of these initiatives are to lower the cost of necessary medications, pay off unpaid electricity subsidies and GasCo debt, and assist MSMEs, producers, business owners, and craftsmen.
The administration stated that intervention spending should be prioritised to lessen the impact on leverage indicators and that these steps are essential to maintain the significant reforms already implemented.
If additional borrowing is used to cover all intervention spending, the debt-to-GDP ratio is predicted to reach 47.6 percent. The depreciation of the naira caused the government’s debt to increase to 46% of GDP by the end of 2023, according to the International Monetary Fund (IMF). With 9.4% of GDP in 2023, Nigeria is expected to have one of the lowest revenue takes globally.
“Staff assess Nigeria’s risk of sovereign stress as moderate, reflecting the long maturity structure of debt and moderate gross financing needs,” the IMF stated in a recent assessment of Nigeria’s debt sustainability. But, they flag sources of risk, including from global uncertainty, exchange rate depreciation, and still weak revenue mobilisation.” Risks would rise in the absence of measures to protect macroeconomic stability and improvements in the fiscal condition.
The coordinating minister for the economy, Edun, stressed during the budget’s 2024 presentation that the plan would be implemented with a reduced reliance on borrowing and a greater emphasis on encouraging both domestic and foreign investment as well as the privatisation of vital government assets.
During the April IMF-World Bank spring meetings, Edun said that Nigeria was eligible to receive a $2.25 billion loan at a one percent interest rate from the World Bank.
