Capital Expenditure Suffers as FG Services Debt with N7.4tn
The Federal Government’s expenditure report for the first eight months of 2024 has laid bare the heavy toll debt servicing is taking on Nigeria’s finances.
Between January and August, a total of N7.41tn was spent on servicing debts, exceeding the pro-rata budget of N5.51tn by 34.4 percent.
It was also 89.6 per cent of the N8.27tn budgeted for debt servicing this year, and the government will likely exceed this, just as it did in 2023.
According to the most recent Medium-Term Expenditure Framework, in 2023, the Federal Government allocated N6.55tn for debt servicing, but actual spending rose to N8.56tn, exceeding the budget by N1.99tn (30.5 per cent).
This increase was primarily driven by domestic debt servicing, which accounted for N5.03tn, surpassing its budgeted N3.92tn by 28.5 per cent.
Foreign debt servicing recorded N1.82tn, aligning closely with its budgeted allocation.
Meanwhile, capital expenditures continue to face significant shortfalls, further constraining developmental progress.
This massive outlay contrasts sharply with the dismal performance of capital expenditure, which stood at just N3.65tn, an alarming 60.3 per cent below its pro-rata target of N9.18tn.
Figures from the 2025 – 2027 Medium-Term Expenditure Framework show that domestic debt servicing accounted for N3.60tn, slightly surpassing the pro-rata budget of N3.53tn by 2 per cent.
Meanwhile, foreign debt servicing ballooned to N3.80tn, more than double the budgeted N1.83tn, representing a variance of 107.7 per cent.
The surge in foreign debt repayments has been attributed to the depreciating naira, which has significantly inflated the cost of dollar-denominated debts.
Economists in the past raised concerns that Nigeria’s rising external debt obligations are draining foreign reserves and straining the government’s ability to finance development projects.
Further observation reveals that FG spent N3.05bn on servicing interest on bonds tied to securitised Central Bank advances.
While the Federal Government’s spending on debt servicing has surged, the data paints a grim picture of capital expenditure, which is vital for driving economic growth.
Out of the N13.77tn allocated for capital projects in 2024, only N3.65tn was spent as of August, leaving a shortfall of N6.03tn.
The most significant underperformance was seen in government-owned enterprises, where just N95.31bn was utilised, a staggering 82.6 per cent below the pro-rata budget of N547.27bn.
Multilateral and bilateral project-tied loans, which are key to funding infrastructure projects, also recorded zero utilisation out of a budgeted N1.05tn.
This has raised concerns about Nigeria’s ability to implement and complete crucial infrastructure initiatives.
Earlier, it was reported that Nigeria’s capital expenditure for the first half of 2024 has declined by 25.3 per cent to N1.99tn, down from N2.68tn in the corresponding period last year.
It was observed that this decline occurred despite the government operating four budgets concurrently.
An analysis of data from the Central Bank of Nigeria’s statistical bulletin showed a shift in spending priorities towards recurrent costs and debt servicing, raising concerns over the long-term impact on economic development.
At the 30th Nigerian Economic Summit on Monday, Abubakar Bagudu, the Minister of Budget and Economic Planning, emphasised the government’s commitment to restoring economic stability through the introduction of three distinct budgets.
The minister highlighted the importance of a N2.17tn supplementary budget, the 2024 annual budget, and an amendment to the 2024 budget, which incorporated the Renewed Hope Infrastructure Fund.
The minister explained that these budgets demonstrate the government’s focus on addressing key national priorities, including agriculture and food security, infrastructure, human capital development, security, social investment, and the creative economy.
He outlined innovative measures such as expanding consumer credit to support manufacturing, reforming mortgages to broaden access to housing, launching a student loan scheme, and promoting the CNG energy transition programme.
Bagudu further noted that adopting these multiple budgets is part of a broader effort to reduce the fiscal deficit and enhance capital expenditure, ensuring that the government can fund critical projects while maintaining fiscal discipline.
He said, “Between last year’s summit and today, we have had a N2.17tn Supplementary Budget, a 2024 annual budget, and an amendment to the 2024 budget, which incorporated the Renewed Hope Infrastructure Fund into the budget.
“The three budgets demonstrate our commitment to restoring economic stability and funding our priorities: agriculture and food security, infrastructure, human capital development, security and social investment, and innovation and creative economy. Innovative measures include expansion.”
However, existing data showed that the government’s spending on capital projects has declined this year.
The dominance of debt servicing in the budget has sparked fears of long-term economic stagnation.
Experts have warned that prioritising debt repayments over developmental spending could stifle growth and leave critical sectors underfunded.
The situation is further exacerbated by Nigeria’s limited revenue base, which struggles to keep up with the rising cost of borrowing.
The Federal Government had plans to allocate a significant portion of its budget to debt servicing over the next three years, surpassing allocations for capital expenditures.
The MTEF document further reveals that debt servicing is projected to cost N50.39tn between 2025 and 2027, exceeding the N48.93tn set aside for capital expenditures.
This discrepancy raises concerns about fiscal sustainability and economic development.
It was reported earlier that debt servicing is expected to rise from N15.38tn in 2025 to N19.49tn in 2027, marking a sharp 26.7 per cent increase over three years.
This upward trajectory highlights the growing burden of Nigeria’s debt obligations. For perspective, the FG spent N8.56tn on debt servicing in 2023, meaning that by 2027, the figure would have more than doubled, representing a 127.7 per cent increase in just four years.
Debt servicing will account for 34.06 per cent of total annual expenditures during the three years, raising concerns about the nation’s fiscal sustainability.
Experts fear that the high cost of servicing debts could further strain government resources, leaving little room for investments in critical infrastructure and development programmes.
Capital expenditure, which is crucial for infrastructure development, is projected to grow by only 0.18 per cent, rising from N16.48tn in 2025 to N16.51tn in 2027.
However, this growth pales in comparison to the projected rise in debt servicing. Over the three years, the FG plans to spend 2.98 per cent more on servicing debts than on capital projects, a trend that economists say could hinder Nigeria’s development goals.
SOURCE: The PUNCH
