Volatile Exchange Rate May Affect Debt Servicing – Report
A new report from PricewatershouseCoopers (PwC) has revealed that Nigeria may face challenges with its debt servicing in 2024 over volatility in the forex market.
This was contained in the PwC Nigeria Economic Outlook for 2024 which detailed the seven trends that will shape the Nigerian economy in 2024.
According to the report, public debt may remain elevated because of increased budget deficit for the year adding that higher government spending may persist due to debt service obligations and managing substantial fiscal deficits.
The report also noted that a drop in revenue might increase the deficit to GDP ratio from its high of 123 per cent in the first quarter of 2023.
It further referenced a World Bank report where the bank warned that without important fiscal reforms, the debt service to GDP ratio might rise to 160 per cent by 2027.
According to the report, “The public debt stock of N87.9trn in Q3 2023 may increase further in 2024 due to the budgeted deficit of N9.18trn and proposed additional borrowing of N8.88trn in 2024.
“Furthermore, if a revenue shortfall occurs, the deficit to GDP may further increase. Though the debt stock to GDP is low at 37.1 per cent, the debt servicing to revenue ratio remains high at 124 per cent as of H1 2023.
“Servicing external debt in 2024 may remain challenging due to exchange rate volatility and potential devaluation of the naira.”
A capital market executive, Samuel Showunmi, has urged President Bola Tinubu to address the naira depreciation and deal decisively with violators of forex guidelines and framework.
Showunmi, an executive at Iron Global Markets Limited, a subsidiary of Iron Capital said there should be both short and long term solutions to solving the depreciation of naira.
He said, “There are no simple or quick fix measures. The measures must be a consolidation of different strategies and policies. The government must quickly come out with FX reforms policy and I know that the Central Bank of Nigeria (CBN) is working on a new regulatory framework for the FX market but I will want to advise that we don’t delay too much because delay can be dangerous.”
