Global public debts and fiscal deficits are still higher than pre-pandemic levels. Factors such as higher interest rates, which raised debt servicing costs, increased spending on social benefits and subsidies, and energy price shocks are the main drivers of global public debts. The IMF's fiscal monitor report projects that global public debt will continue to grow, primarily driven by increases in public debt within China and the United States, and is expected to surpass pre-pandemic levels. Fiscal policy developments in major economies like the United States have several implications for global financing conditions. According to the IMF World Economic Outlook, interest payments are estimated to average 14.3% of general government revenues in 2024; this is about a 100% increase compared to 15 years ago. In many developing countries, fiscal policy is projected to reduce or stabilise public debt-to-GDP ratios.
Sub-Saharan African countries still have a high debt-to-GDP ratio, increasing the risk of falling into a debt trap. While the debt ratio is declining, it is still above the pre-pandemic level and exceeds the recommended 40% threshold of the IMF and World Bank. Funding shortages and high borrowing costs constrain governments in SSA. These financing challenges have significantly reduced public spending on crucial capital projects and infrastructure, reallocating funds to debt servicing. However, as advanced economies begin to cut interest rates, particularly in the United States, debt service costs are reduced, and the cost of borrowing is expected to decrease in SSA. According to the IMF, the average debt-to-GDP ratios in the region will stabilise at around 53% in 2024.
Fiscal Policy and Public Finance
The present administration marked changes in Nigeria’s fiscal policy by instituting several key reforms. Among these were the removal of fuel subsidies, a thorough review of the nation’s tax policies, followed by a series of bills aimed at consolidating tax revenues, the approval of other pro-business policies aimed at attracting investments, and the deployment of palliative measures aimed at cushioning the effects of the recent spikes in the cost of living across the country.
Nigeria’s fiscal health relies on balancing revenues (acquired from taxes and borrowings) and expenses (debt servicing and non-debt capital and recurrent). In 2023, the federal government earned over ₦5.9 trillion in revenues and spent over ₦19 trillion. This amounts to a deficit of ₦13.5 trillion. The figures are expected to increase significantly in 2024 as the full effect of the subsidy removals unfolds throughout the year. In its budget for 2024, the Federal Government proposed expenditures of ₦27.5 trillion (with a supplementary budget of 6.2 trillion) and revenues of ₦18.32 trillion.
Similarly, the government's debt position has shown remarkable improvement. The nation’s total public debt stock (domestic and foreign) in Q1 2023 stood at $108.3 billion. The figure declined to $91.46 billion in Q1 2024. Consequently, debt service to government revenue ratios improved from over 97% in 2023 to about 70% in 2024. Admittedly, the 2024 figure could change if revenue falls short of projections and forces the government to increase borrowing.
Fiscal Consolidation Strategies for Nigeria
Fiscal consolidation strategies are essential for the Nigerian economy to achieve fiscal sustainability, inclusive growth, and poverty reduction in 2025 and beyond. To achieve fiscal consolidation, the government must strengthen the institutional framework across and within relevant Ministries, Departments, and Agencies (MDA). This will help in practical, transparent, accountable, and credible fiscal governance and reduce corruption. In addition, the fiscal authorities must continue debt restructuring negotiations while prioritising concessional loans from the World Bank, IMF, and African Development Bank (ADB) over commercial loans to lower borrowing costs. Similarly, an effective and efficient revenue mobilisation process is vital for fiscal consolidation. Digitalising tax and revenue collation systems at federal and state levels will improve revenue mobilisation. This will promote transparency and accountability in government financial practices.
2025 Outlook
Heading into 2025, improvements in revenue receipts are expected, particularly if the planned consolidation of tax collection through the Nigeria Revenue Service is approved. To gain further insights into our outlook for public finance in Nigeria in 2025, join us for the official launch of our macroeconomic outlook coming up on 13th November 2024
Register here: https://us06web.zoom.us/webinar/register/WN_Ar_FfqEfR2ConYawTBulIA
