Nigeria, the largest economy in Africa, is facing a huge budget deficit as it struggles to cope with the impact of the Covid-19 pandemic, low oil prices, and high inflation. The country’s government plans to raise nine trillion naira ($11.98 billion) of debt to help fund next year’s budget, according to Ben Akabueze, the head of the West African nation’s budget office.
The debt will be sourced from both domestic and external markets, Akabueze said in an interview at the Nigerian Economic Summit in the capital, Abuja. He added that details of the 2024 budget proposals will be presented to lawmakers by the middle of November.
Nigeria’s debt profile has been rising steadily in recent years, reaching $43.16 billion or N33.2115 trillion as of June 2023. The country spent $2.56 billion to service its foreign debt obligations in nine months of 2023, representing an 18% year-on-year increase from $2.17 billion in nine months of 2022.
Nigeria’s foreign exchange crisis
Nigeria is also grappling with a severe foreign exchange crisis that has weakened its currency, the naira, and hampered economic growth. The naira slid about 4% against the dollar on Monday amid insatiable demand for the greenback. The decline came days after the central bank ended curbs on using dollars to buy dozens of imported items, and at a time of the year that typically sees Nigerians making payments for tuition at foreign schools and universities.
The central bank has been trying to unify the multiple exchange rates that exist in the country and attract more foreign inflows to boost its dwindling reserves. The bank plans to allow other participants including bureaux de change and financial-technology companies that provide mobile-money services, according to Taiwo Oyedele, chairman of the presidential committee on fiscal policy and tax reforms.
Once the official market has been expanded, the parallel market will be turned into “a black market, which is just for elicits and speculators,” Oyedele said. Nigeria’s currency plummeted about 4% to 1,215 a dollar on the streets of the nation’s cities on Monday. The naira was trading at 808.27 naira a dollar at close last Friday from 782.67 the previous day in the official market.
Nigeria’s economic outlook
Despite the challenges, Nigeria’s government is optimistic about its economic outlook and expects to receive $10 billion of inflows in the coming weeks that will help ease the liquidity crunch weighing on the naira. The funds are expected to come from several sources including foreign direct investment and sovereign wealth funds, Finance Minister Wale Edun said at the Nigerian Economic Summit on Monday.
The government also projects a 5% growth rate for 2023, up from 3.3% in 2022, driven by improved oil production and recovery in non-oil sectors. The International Monetary Fund (IMF) recently said Nigeria’s economy is expected to grow by 4% in 2023, after contracting by 1.8% in 2022 due to the pandemic.
However, the IMF also warned that Nigeria faces significant risks from high inflation, security challenges, and governance issues that could undermine its recovery prospects. The fund urged Nigeria to implement structural reforms to improve its revenue mobilization, public financial management, and business environment.
