UN Says High Debt, Inflation Threaten Nigeria’s Economic Growth in 2024
The United Nations has disclosed that rising public debt, persistent inflation, high cost of living, and a weak business environment, will continue to pose a downward risk to Nigeria’s growth prospects.
In its ‘World Economic Situation and Prospects 2024’ report, the Department of Economic and Social Affairs of the UN revealed that recent reforms by the government will boost GDP in 2024 to 3.1 per cent. It stated that policy reforms by the government in 2023, especially in the hydrocarbon sector, have contributed moderately to the country’s growth prospects for 2024.
Commenting on the issues that might negatively impact the country, the UN said, “However, ballooning public debt, persistent inflation, and a rising cost of living, together with a weak business environment, will pose a downward risk to growth prospects.”
It noted that efforts to increase “in-country oil refining capacity would likely reduce domestic fuel costs in 2024 and beyond.”
The New York City headquartered agency highlighted that generally African economies faced significant inflationary pressures in 2023, resulting in an inflation rate higher than the recent average. It decried the impact of exchange rate on inflationary pressures and stated that high fuel prices resulted in higher local prices for essential items such as food.
It stated, “Food inflation remained elevated (above 30 per cent) for some of the larger economies, including Nigeria, Egypt, and Ghana.”
The United Nations pointed out that many African countries continued to experience deteriorating fiscal positions against the backdrop of high public debt and a low domestic revenue base in 2023. It stated that structural vulnerabilities such as weak taxation frameworks, narrow tax bases, and inadequate institutional capacity limit the effectiveness of fiscal policy reforms on the continent.
Commenting on tax revenues, it said, “Tax revenue currently accounts for approximately 16.6 per cent of GDP, which compares poorly with the corresponding shares for regions such as Asia and the Pacific (21 per cent) and Latin America and the Caribbean (22.9 per cent).”
It noted that energy subsidy reforms in Nigeria, Angola, and Gambia, as well as tax hikes in Kenya, Ghana and South Africa, aim to provide the governments of these countries with some relief from tight fiscal spaces.
The humanitarian agency stated that the volatility of commodity prices and susceptibility to external shocks also contributed to fiscal policy uncertainty in the region. Borrowing has gotten more expensive, the agency noted, with many African countries cut off from the international market due to low credit ratings.
It said, “Development financing access and costs remain a daunting challenge, with debt overhangs hindering most African countries from accessing capital at affordable rates from international markets. Borrowing costs for Governments in Africa remain elevated, largely due to low credit ratings.
“Estimates show that borrowing costs for the African countries are approximately four times higher than those for developed countries. In 2023, the three major international credit rating agencies downgraded some of the major economies in Africa, including Nigeria, Ghana, Egypt, Kenya, and Morocco.
According to it, the African Union is working on establishing an independent credit rating modality that will provide balanced and comprehensive risk evaluations for African countries to lower their borrowing costs in international financial markets.
It concluded by stating that the economic outlook for Africa remains clouded by debt, lingering inflation, and climate risks, compounded by uncertainties on the political front. It added that the continent remains the most food insecure region in the world, with approximately 60 per cent of the population experiencing moderate or severe food insecurity against a global average of 29.6 per cent.
Nigeria’s total public debt rose to N87.91trn in the third quarter of 2023 according to data from the Debt Management Office. Recently, the Attorney General of the Federation and Minister of Justice, Lateef Fagbemi, decried the dangers of the rising debt profiles of governments across all levels in the country.
He said, “I also need to comment on the increasingly rising debt profiles of Government at all levels, which pose serious danger and challenge to our national economy and existence as an independent nation.”
Recently, the International Monetary Fund stated that inflation will slow Nigeria’s economic growth. It said, “Growth in Nigeria is projected to decline from 3.3 percent in 2022 to 2.9 per cent in 2023 and 3.1 per cent in 2024, with negative effects of high inflation on consumption taking hold.”
