Lagos, Nigeria – November 15, 2024 – According to data from Nigeria’s Debt Management Office (DMO), the federal government’s Promissory Notes debt surged to N1.65 trillion as of June 2024, marking a 6.5% increase from March 2024. This significant rise in Promissory Notes, a debt instrument used by the government to settle obligations it cannot immediately fund through revenue, underscores the growing fiscal pressures facing the administration of President Bola Tinubu.
Key Insights:
- Promissory Notes debt: N1.65 trillion as of June 2024, up 6.5% from March 2024.
- Increase since 2023: A staggering 114% rise in Promissory Notes debt since President Tinubu took office.
- Domestic and foreign debt: Total public debt reached N71.2 trillion (domestic) and $42.9 billion (foreign) as of mid-2024, reflecting increases of 20.4% and 1.1%, respectively, from December 2023.
- Promissory Notes share: As of June 2023, Promissory Notes accounted for N780 billion of Nigeria’s total debt.
The Rising Role of Promissory Notes
Promissory Notes have become a key tool for the federal government to meet short-term financial obligations without immediate access to cash or revenue. These short-term debt instruments are essentially written promises to repay a certain amount at a future date. They have become an essential mechanism for financing various government commitments, including outstanding debts to contractors, suppliers, and other stakeholders.
Since President Tinubu’s administration began, Promissory Notes have seen a remarkable increase, with a 114% rise since he assumed office. This uptick highlights Nigeria’s increasing reliance on this form of debt to cover its fiscal gaps.
Key Drivers of the Increase
The rise in Promissory Notes has been attributed to several factors. One significant driver is the government’s struggle to redeem its debt after it ceased relying on Ways and Means (central bank financing). This struggle has forced the government to rely more on Promissory Notes to address outstanding obligations.
A report from Nairametrics indicated that part of the increase in Promissory Notes as of December 2023 was tied to the Export Expansion Grant (EEG) scheme, which had been underfunded and had accumulated arrears from previous administrations. Although the specifics behind the N342.6 billion rise in 2024 are not fully detailed, industry observers speculate that the increase may be linked to contractual debts owed to government contractors, oil marketers, and suppliers.
Domestic Debt Growth
Nigeria’s overall domestic debt has also seen a dramatic increase, rising from N54.1 trillion in June 2023 to N71.2 trillion in June 2024. This 20.4% increase in domestic debt underscores the fiscal challenges facing the government, as the country grapples with a widening fiscal deficit and rising borrowing costs.
Fiscal Deficit and Economic Pressures
A recent report from Nairametrics revealed that Nigeria’s budget deficit had already reached 7.6% of GDP by August 2024, well beyond the government’s approved target of 3.8% for the year. This has been driven by a mismatch between revenue and spending, exacerbated by lower-than-expected oil revenues and increased public spending.
The government’s budget for 2024 was initially set at N28.7 trillion, with a revenue target of N19.5 trillion, leading to an anticipated deficit of N9.1 trillion. However, with the deficit far surpassing projections, the government introduced a supplementary budget of N6.2 trillion, further intensifying fiscal pressures.
Looking Ahead: 2025 Fiscal Year
As the 2025 fiscal year approaches, the Nigerian government has proposed a budget of N47.9 trillion, a 35% increase from the 2024 budget. The Medium-Term Expenditure Framework (MTEF) for 2025-2027 includes key assumptions such as a crude oil benchmark price of $75 per barrel, oil production of 2.06 million barrels per day, and an exchange rate of N1,400 to the dollar.
However, the government’s rising domestic debt and increasing reliance on Promissory Notes point to the need for more sustainable fiscal strategies. As Nigeria continues to grapple with a widening fiscal deficit and an expanding public debt burden, ensuring long-term economic stability will be a critical challenge for the Tinubu administration.
The rising Promissory Notes debt and public debt levels underscore the growing fiscal strain Nigeria faces as it navigates an uncertain economic landscape. While the government’s proposed 2025 budget suggests an expansionary fiscal stance aimed at stimulating economic growth, the increase in debt and deficit raises concerns about sustainability and the country’s ability to manage its financial obligations in the long term.
