Government should do well to heed the warning
The recent warning by the International Monetary Fund (IMF) about Nigeria’s mounting public debt is concerning. While projecting that the country’s public external debt could surge from $51.9 billion in 2025 to $72.6 billion by 2027, the IMF has cautioned that 2027 general election spending, food insecurity as well as complex and opaque borrowing structures are heavily straining public finances. Specifically, the IMF has cautioned against a proposed $5 billion Total Return Swap (TRS) with a UAE lender (First Abu Dhabi Bank), stating that such complex derivatives could expose the country to severe margin calls if the naira weakens. We hope the federal government will heed the warning.
While admitting that the reforms undertaken by the current administration have strengthened macroeconomic stability and improved the country’s ability to withstand external shocks, the IMF warns that weak revenue mobilisation, expenditure slippages, contingent liabilities, etc., could worsen the debt outlook if not carefully managed. Meanwhile, the World Bank had similarly expressed a similar concern over the debt service to revenue ratio, saying that reduced earnings might render the country’s debt unsustainable. We are also worried by the frequency of borrowing by the federal and state governments as many analysts continue to sound a note of caution that the country may be heading for another debt trap if restraint is not exercised.
