PwC raises concerns over Nigeria’s N121.6tr debt, rising deficit

• Says deficit above Fiscal Responsibility Act limit
• Peter Obi advises FG on sustainable economic growth

Accounting and consultancy firm, PricewaterhouseCoopers International Limited (PWC), yesterday raised the alarm that Nigeria’s public debt hit N121.67 trillion in the first quarter of 2024, saying the country’s fiscal deficit is above the three per cent threshold of the Fiscal Responsibility Act (FRA).

PWC said the debt issuance without a commensurate rise in revenue-generating investments may hurt private investors .

The professional services firm stated this in its ‘Nigerian Economic Outlook, June 2024’, released yesterday.

In the same vein, the candidate of Labour Party (LP) in the 2023 general elections, Peter Obi, has advised the Federal Government on how the country “can promote sustainable economic growth, development, and prosperity for all Nigerians for generations to come.”

Obi spoke on his X handle when he raised concern that the debt incurred by the Federal Government had soared to N121 trillion.

He also expressed apprehension that the debt profile of the country could surpass N150 trillion by the end of the year.

PwC noted that the continuous rise in debt from issuances of debt instruments without a commensurate rise in revenue-generating investments might crowd out private investment and worsen the country’s debt profile in the long-term.

Nigeria’s public debt grew by 144.1 per cent to N121.67 trillion in Q1 2024 from N49.85 trillion in Q1 2023 due to naira devaluation, additional debts and the securitisation of ways and means.

According to PWC, N4.9 trillion of the N7 trillion approved for the securitisation of ways and means as well as N4.5 trillion debt to fund the 2024 budget deficit was raised by the DMO as of May 2024.

PWC said: “The fiscal deficit to GDP of 6.1 per cent recorded in 2023 remains above the Fiscal Responsibility Act (FRA) threshold of three per cent, consequently leading to a high debt profile. Fiscal sustainability concerns may remain slightly elevated, given debt servicing costs (89 per cent of the budgeted fiscal deficit is to be financed by new borrowings).”

According to PWC, the Federal Government must drive fiscal prudence by optimising spending on capital projects with the highest Return on Investment (ROI).

The government must also “rationalise public service spending and improve revenue diversification and collection efficiency.”

Meanwhile, on a positive note, foreign investment inflows to Nigeria grew to $3.38 billion in the first quarter of 2024, a 210.16 per cent increase from $1.09 billion in the fourth quarter of 2023, according to the latest capital importation report by the National Bureau of Statistics (NBS).

On the flip side, capital importation into Nigeria recorded 198 per cent year-on-year growth from $1.13 billion in the first quarter of 2023.

“Portfolio investment ranked top with $2,075.59 million, accounting for 61.48 per cent, followed by other investments with $1,181.25 million, accounting for 34.99 per cent. Foreign direct investment recorded the least with $119.18 million (3.53 per cent) of total capital importation in Q1 2024,” the NBS report stated.

The banking sector recorded the highest inflow with $2,067.44 million, representing 61.24 per cent of total capital imported in Q1 2024, followed by the trading sector, valued at $494.93 million (14.66 per cent), and production/manufacturing sector with $191.92 million (5.68 per cent).

NBS stated: “Capital importation during the reference period originated largely from the United Kingdom with $1,805.83 million, showing 53.49 per cent of the total capital imported. This was followed by the Republic of South Africa with $582.34 million (17.25 per cent) and the Cayman Islands with $186.21 million (5.52 per cent).

“Out of the three states that recorded capital importation during the quarter, Lagos State remained the top destination with $2,782.41 million, accounting for 82.42 per cent of the total capital imported. Abuja (FCT) followed with $593.58 million (17.58 per cent) and Ekiti State with $0.01 million.

“Stanbic IBTC Bank Plc received the highest capital importation into Nigeria in Q1 2024 with $1,257.38 million (37.24 per cent), followed by Citibank Nigeria Limited with $547.71 million (16.22 per cent) and Rand Merchant Bank Plc with $528.73 (15.66 per cent).”

Obi, the former Anambra State governor, said: “I have consistently maintained that borrowing is not inherently problematic, as long as it is utilised for productive purposes that drive economic growth and development. 

“The recent report at the end of the first quarter indicates a significant increase in our government’s borrowing, reaching a staggering N121 trillion. This rapid accumulation of debt is alarming, and if this borrowing trend continues at the current rate, we can expect the total to surpass N150 trillion by the end of the year.

“The fact that several trillions were borrowed in just three months highlights the urgent need for prudent management of our finances. It is crucial to recognise that the purpose of borrowing is paramount. If the borrowed funds are used for consumption or misallocated, we risk worsening our economic situation, perpetuating a cycle of debt and hindering our ability to achieve sustainable economic growth and development.”

Obi said, on the other hand, if the funds were channelled into productive endeavours, such as infrastructure development, education, healthcare, and entrepreneurship, Nigeria could expect positive outcomes that benefit its economy and citizens in the long run.

He noted that the law governing borrowing is explicit, requiring detailed explanations of the intended use, timing, and other relevant parameters. He said it is essential to ensure that borrowed funds are allocated efficiently and effectively to drive economic growth, create jobs, and improve the standard of living of the majority of our citizens.  

“I respectfully request accountability for the massive borrowings, which have burdened our nation’s future. For the sake of our children and unborn generations, transparency and good governance, a detailed breakdown of how these funds have been utilised and their tangible impact on our country’s growth and development should be provided,” he said.  

He added: “By doing so, we can promote sustainable economic growth, development, and prosperity for all Nigerians for generations to come. Our future stability and prosperity depends on prudent management of resources.”

The post PwC raises concerns over Nigeria’s N121.6tr debt, rising deficit appeared first on Guardian Nigeria News.