Public debt has emerged as a pressing issue in Nigeria, raising concerns about its causes, consequences, and implications for economic stability and development. The escalating levels of public debt have sparked debates among policymakers, economists, and stakeholders about the factors driving this crisis and the potential ramifications for the country's economy and society. This introduction provides an overview of the public debt situation in Nigeria, examining the root causes of the crisis, the structural factors contributing to debt accumulation, and the likely consequences for fiscal sustainability and socio-economic development.

Nigeria, endowed with abundant natural resources and a large population, has long been considered a regional economic powerhouse in Africa [1]. However, despite its economic potential, the country has faced persistent challenges, including fiscal deficits, over-reliance on oil revenue, and weak governance structures. These challenges have contributed to a pattern of fiscal imbalance and increased borrowing to finance government expenditure, leading to a significant rise in public debt levels [2]. The causes of Nigeria's public debt crisis are multifaceted and rooted in structural weaknesses within the economy. One of the primary drivers is the country's heavy dependence on oil revenue, which exposes it to volatility in global oil prices and revenue fluctuations [3]. Consequently, fiscal deficits have become a recurring feature of Nigeria's budgetary framework, necessitating borrowing to bridge the gap between revenue and expenditure. Weak fiscal discipline and governance further exacerbate the problem, leading to inefficient allocation of resources and wastage, thus increasing the need for borrowing [4]. The consequences of Nigeria's escalating public debt are far-reaching and extend beyond the realm of government finances. Macroeconomic stability is threatened by the rising debt burden, with potential implications for currency depreciation, inflationary pressures, and higher borrowing costs [5]. Moreover, excessive debt levels can crowd out private investment, hinder economic growth, and perpetuate cycles of poverty and inequality. The servicing of debt obligations diverts resources away from critical sectors such as healthcare, education, and infrastructure, undermining long-term development prospects and exacerbating social tensions [6] There are two types/sources of public debt-internal and external [7]. While sources such as Treasury Bills (TB), Treasury Certificates (TC) and Government Development Stocks (GDS) are the major internal sources through which public debt can be contracted, loans from international lending institutions such as International Monetary Fund (IMF), the World Bank (WB), African Development Bank (AfDB) and Paris Club (PC) are the major sources of external debt available to countries across the globe especially the developing nations of Africa like Nigeria. Addressing Nigeria's public debt crisis requires a comprehensive and multi-faceted approach that encompasses fiscal reforms, revenue diversification, and enhanced debt management strategies. Fiscal reforms aimed at enhancing revenue mobilization, improving expenditure efficiency, and promoting transparency and accountability in public financial management are essential to address the root causes of the crisis [4]. Diversifying the economy away from oil dependency and promoting non-oil sectors can reduce vulnerability to external shocks and create alternative sources of revenue. Additionally, enhancing debt management practices, including debt restructuring, refinancing, and strengthening institutional capacity, is crucial to ensure sustainable debt levels and mitigate risks associated with debt accumulation. The objectives of this study is to analyse the Nigeria’s public debt profiles of the fiscal years 2022 and 2023 based on its sources, burden, servicing and implications to the economy.  This is achieved through thorough exploration and content analysis of the recent debt portfolios of the fiscal years 2022 and 2023 which are analysed systematically. Thus, the paper is categorized into 5 sections including the introduction. In the second section, systematic literature review is carried out to bring out the causes and consequences of the debt stock in Nigeria including theoretical expositions. Section 3 presents the methodology employed for the study while section presents and analyzes the debt profile data. Lastly, section 5 concludes the paper and recommendations are offered.

Conceptual Clarifications

Public Debt refers to how much a country owes to lenders outside its shore [8]. Public debt also called national debt includes the totality of debt owed by government of a nation internally and externally. External debts are those obligations of government to international institutions such as IMF and AfDB. Internal debts are those debt obligation of government owed to residents of the country. The accumulation of debts or borrowings (internal and external) is as a result of accumulation of a country’s budget deficits resulting from government spending more than it takes in through the instrumentality of taxation [9]. Joyade and Oni [10] viewed that while internal debt (borrowing) of a country may not have significant burden on her citizen as payment of the interest and principal to service the debt involves a transfer of purchasing power from a section of the citizens to another and therefore productive, external component of public debt on the other hand is counter-productive involving greater burden as interest charges and repayment of the principal sum involves transfer of resources to creditors/lenders abroad. Collaborating Joyade & Oni [10], Lawal and Muna [11] stated that resources transfer to foreign nations is a sad and unfortunate fund raising and financing arrangement as interest payment alone is capable of reducing the net income of the debtor nation and therefore counter-productive especially where the funds are not properly utilized as the case with many developing nations of Africa.

Causes of Public Debt in Nigeria

In Nigeria, several factors contribute to the accumulation of public debt, leading to a concerning level of indebtedness. Firstly, the country's heavy dependence on oil revenue stands out as a significant cause of public debt. Nigeria's economy relies heavily on oil exports, making it vulnerable to fluctuations in global oil prices. When oil prices decline, as seen in periods of oil market volatility, government revenue decreases, leading to budget deficits and the need to borrow to finance expenditures [3]. Secondly, weak fiscal discipline and governance issues exacerbate Nigeria's public debt challenges. Inefficient management of public finances, including wasteful spending and corruption, contributes to fiscal deficits and increases the government's borrowing requirements. Weak budgetary controls, inadequate oversight mechanisms, and ineffective revenue collection systems further compound the problem, leading to unsustainable levels of public debt [4]. Moreover, Nigeria's infrastructure deficit plays a significant role in driving public debt accumulation. The country faces substantial infrastructure needs, including transportation, energy, and telecommunications, to support economic growth and development. However, inadequate investment in infrastructure over the years has resulted in crumbling infrastructure and bottlenecks in key sectors, hindering productivity and competitiveness. To address these infrastructure gaps, the government often resorts to borrowing, adding to the overall public debt burden [1]. Also, economic shocks and crises, both domestic and external, contribute to Nigeria's public debt challenges. Periods of economic downturns, such as recessions or financial crises, can strain government finances and increase borrowing needs to stimulate economic recovery or mitigate the impacts of the crisis on vulnerable populations. External shocks, such as the COVID-19 pandemic or global economic downturns, can also exacerbate Nigeria's public debt situation by disrupting revenue streams and necessitating emergency spending measures [2].

Nigeria’s economy like other nations in Sub-Saharan Africa is a developing one fraught with many challenges. Prominent among these challenges is paucity of funds to prosecute many of her developmental plans [12]. As a mono-cultural economy, the only source of her revenue do most times suffer price reduction for reasons such as glut in the supply of the commodity (oil), low demand in the international market and occurrence in the economy that might affect production. A good example of such occurrence in 2020 is Covid-19 pandemic where activities across the globe were brought to a standstill. Drastic revenue reduction in the year 2020 affected many developmental plans of the country and government resorted to borrowing to execute some of the programmes of the budget. For instance, the original planned budget of about N9.1 trillion benched marked against projected oil prices of $60per barrel has to be revised to about N 8.1 trillion benched marked against $30 per barrel as a result of the pandemic. Many countries especially developing nations of Africa like Nigeria borrowed to finance programmes in 2020 as a result of pandemic [13]. Another bitter, sad and unfortunate of these many causes of the nation’s debt crisis is large accumulation of budget deficit and government’s inability to reduce her expenditure especially, the non-essential/non-value adding ones thus, Khalil and Junaidu [14] noted that the most challenging issues endangering the growth of the nation’s economy is budget deficit accumulation and failure of successive government to identify, measure accurately the cost of activities and governance in order to eliminate or reduce to the barest minimum the cost of activities and engagement that are non-productive [15]. Morris [16] noted that borrowing will be able the order where revenue from taxation can no longer sustain the level of government activities of which many of them (activities) are non- essential in nature and are impossible to eliminate or reduce for political reasons.

Consequences of Public Debt in Nigeria

The consequences of public debt in Nigeria are significant and wide-ranging, impacting various aspects of the economy and society. Firstly, high levels of public debt can lead to macroeconomic instability, exerting pressure on the country's currency, inflation rates, and interest rates. As the government borrows more to finance its expenditures, it competes with the private sector for available funds, leading to crowding out of private investment and hindering economic growth [5]. Secondly, public debt poses risks to fiscal sustainability, as a large portion of government revenue is allocated towards debt servicing rather than essential public services and investments. This can lead to underinvestment in critical sectors such as infrastructure, healthcare, and education, hindering long-term economic development and exacerbating social inequalities [2]. Moreover, public debt can undermine investor confidence and credibility in Nigeria's financial markets. High debt levels signal fiscal weakness and raise concerns about debt sustainability, leading to increased risk premiums on government bonds and higher borrowing costs. This can further strain government finances and limit the country's ability to access international capital markets on favourable terms [1] .Furthermore, public debt can have adverse social consequences, exacerbating poverty, and income inequality. Debt-financed government spending often benefits the wealthy elite or certain sectors of the economy more than others, widening the gap between the rich and the poor. Additionally, the burden of debt servicing falls disproportionately on the most vulnerable segments of society, as government spending on social welfare programs may be reduced to meet debt obligation [2]. Also, public debt can also hinder the government's ability to respond to crises and emergencies effectively. In times of economic downturns, natural disasters, or pandemics, the government may face difficulty mobilizing resources to address urgent needs, as a significant portion of its budget is allocated towards debt servicing. This can exacerbate the impact of crises on vulnerable populations and hinder efforts to achieve sustainable and inclusive development [6]. Other consequences of public borrowing especially externally on Nigerian economy according to Tope & Bode [17] include economic destabilization due to stringent conditions of lenders, increased cost of financing budgeted government programmes/ projects, wreck less spending that triggered inflation, economic slavery and dependency that have imposed large economic burden on future generations and tax payers. Jethro and Mann observed that harsh conditions of lending institutions for funds borrowed by Nigeria is one of the major reasons of many harsh economic reforms the country has been going through. One of such harsh economic reformation is currency devaluation [18,19] The ugly effect of devaluation is much of the Nigerian local currency exchange for few imported goods and services. Unfortunately, Nigerians prefer imported goods and services to local ones even if those goods and services may be inferior to those available locally. Currency devaluation has had a negative effect on the Nigerian economy as it has reduced the spendable income of government that ought to have been invested in the productive sector of the economy for growth [19].

Empirical Review

Ogege and Ekpudu [20] conducted a study on the effects of debt burden on the Nigerian economy. The purpose was to ascertain the effect of debt burden on the growth of the country’s economy. Data for the study were obtained from the Central Bank of Nigeria (CBN) statistical bulletin. Ordinary Least Square (OLS) statistical tool was employed to test the relationship between debt burden and growth of Nigerian economy. Findings showed that there is a negative relationship between debt stock and economic growth implying that increase in debt stock of the nation will lead to decrease in the growth rate. Essien and Ndalo [21] studied the impact of public debt burden in Nigeria. The aim was to examine the effects of government borrowing on the growth of the economy. Data on internal, external borrowing and GDP growth rate for five years (2014-2018) were obtained from the statistical bulletins of CBN, the National Bureau of statistics (NBS) and the Debt Management Office (DMO). The result of regression analysis revealed a negative impact of public debt on GDP growth rate Sylvester [22] carried out a study on external debt and economic growth nexus: Empirical evidence from Nigeria. The aim was to examine the relationship between external debt and economic growth for policy analysis on public finance and public debt management. Data collected on the country’s external debt and GDP growth rate were analyzed using root test and co-integration long run tests. The results showed that debt overhang variable and crowding out effect variable depress the level of investment affecting adversely, the economic growth of the country. Mobolaji, Salau and Ola [23] in a study examined the impact of public borrowing on Nigeria’s economy for the period 2010-2016. The result obtained from regression analysis showed that public debt (borrowing) has negative impact on the economic growth of the country as the GDP growth rate indicated no significant improvement within the period considered. Nbukwe and Kalu [24] examined the relevance of public debt to economic growth in Nigeria.

Theoretical Framework

The study is anchored on the classical/traditional theory of public debt pioneered by Adam Smith, David Hume and David Ricardo in the 18th century. According to the classists, if government expenditure is financed through public borrowing, the present generation gets relieved from the cost and the burden is shifted to the future generation. The future generation suffers reduction in its savings in order to meet the debt servicing obligation thereby leaving a smaller amount of capital resources for the future. Reduction of savings of the present generation will amount to reduced inherited capital and productive capacity of which the future generation will stand to lose. The theory has three (3) key assumptions namely: (i) That public debt is more costly method of financing public expenditure than taxation (ii) That if the present generation does not reduce its consumption and increase its savings, the burden of public debt may pass on to the future generation and (iii) That excess borrowing and mounting public debt by government may undermine the very credit worthiness of a nation and therefore, debt should be kept at the barest minimum and be offset as quickly as possible. The theory is quite relevant to this paper for the fact that one of its critical assumptions meaningful to economic growth is the caution to reduce consumption and increase savings. One of the numerous reasons for mounting public debt in Nigeria, is her propensity for consumption especially imported goods and services, which is detrimental to savings, investment and growth [14].

The study is an exploratory research that focuses on conceptual literature as well as a review of theories and studies in respect to causes and consequences of public debt in Nigeria. The study focuses on Nigeria where the economy depends majorly on one source of foreign revenue without much effort to diversify. Data from National Bureau of Statistics is used on Nigeria’s total public debt portfolio as at December 31, 2022 and 2023. This data is systematically analyzed and synthesized to bring out its implications on the economy with focus on the source, burden and service of the debt [29].

Table 1: Nigeria’s Total Public Debt Portfolio As At December 31, 2022.

Source: National Bureau of Statistics, 2022

Table 1 presents the total public debt portfolio as at December 31, 2022. The data indicates that total amount of outstanding external debt stood at US$41,694.91 million. Federal Government of Nigeria only owed US$37,238.54 million, while States and FCT owed US$4,456.37 million. The total Domestic debt amounted to US$61,415.93 million, FGN only US$49,515.93 million, State US$11, 900, 01 million. The total Nigeria’s Public Debt portfolio as at December 31, 2022 for both External and Domestic Debts stood at US$103,110.84 million. The findings show that, States and FGN accumulated more domestic debt than external debt in the year 2022. By implication the economic burden of internal debt is lesser than that of external debt since the former involves a transfer of resources from tax payer to bond (credit) holders within a nation though dysfunctional to some extent as its benefit is in favour of the higher income class in the society, the burden of external debt is quite heavy on a nation like Nigeria where many projects for which the funds were borrowed are producing well below capacity, managed inefficiently and not yielding the intended benefits [28].

Table 2: Nigeria’s Total Public Debt Portfolio As At December 31, 2023.

Source: National Bureau of Statistics, 2023

Table 2 shows that, total public debt portfolio as at December 31, 2023, indicates that, total amount outstanding external debt was US$42,495.16 million. Federal Government of Nigeria only owed US$37,885.10 million, and States and FCT US$4,610.06 million. The total Domestic debt amounted to US$65,734.18 million. FGN only owed US$59,215.51 million while states and FCT owed US$6,518.67 million. The total Nigeria’s Public Debt portfolio as at December 31, 2023 for External and Domestic Debts stood at US$108,229.34 million. The findings show that, States and FGN accumulated more domestic debt than external debt in the year 2023The findings shows that, total amount outstanding Increases in 2023. This huge increase was as a result of naira devaluation compared to 2022 While the economic burden of internal debt is lesser than that of external debt since .former involves a transfer of resources from tax payer to bond (credit) holders within a nation though dysfunctional to some extent as its benefit is in favour of the higher income class in the society, the burden of external debt is quite heavy on a nation like Nigeria where many projects for which the funds were borrowed are producing well below capacity, managed inefficiently and not yielding the intended benefits. With pressure to repay, the nation over the years has been devoting significant portion of her budget to debt servicing. The pressure always leads the nation precipitating the worsening of the terms of trade with devastating effect on her purchasing power [27].

Public borrowing has become an issue with ever accumulation of budget deficits, over reliance on oil revenue, low productivity, low saving and high propensity to consume foreign goods and services [14]. The compounding issue of public debt accumulation in the country is so severe that quite apart from over reliance on oil revenue to the neglect of other revenue sources that could have been explored, the revenues from this only major source (oil) and indeed other revenue are susceptible to all manner of leakages that further weaken the economy and government had to borrow for developmental projects and programmes. Corruption and economic leakages have deprived the nation her valuable funds that would have been available for project execution [25].

In summary, the causes of public debt in Nigeria are multifaceted, including dependence on oil revenue, weak fiscal discipline, infrastructure deficits, and economic shocks. Addressing these underlying causes requires comprehensive reforms to enhance revenue mobilization, improve fiscal management, prioritize infrastructure investment, and build resilience to economic shocks. By addressing these root causes, Nigeria can mitigate the risks associated with public debt accumulation and promote sustainable economic development [26].

In conclusion, Nigeria's public debt crisis represents a formidable challenge that demands urgent attention and decisive action. Addressing this crisis requires a multifaceted approach, encompassing efforts to enhance revenue mobilization, improve debt management practices, and prioritize investments in critical infrastructure and human capital development. By tackling the root causes of the public debt crisis and implementing prudent fiscal policies, Nigeria can mitigate its adverse effects and lay the foundation for sustainable economic growth and development. However, the path forward will require concerted efforts from government authorities, policymakers, and stakeholders across the public and private sectors to navigate the complexities of the public debt landscape and steer the country toward a more prosperous future.

Recommendations

The researchers made the following recommendations:

Enhance Revenue Mobilization: Implement measures to broaden the tax base, improve tax compliance, and curb revenue leakages. Strengthen tax administration systems and explore innovative revenue-generation strategies to reduce reliance on volatile oil revenue and boost domestic resource mobilization.

Improve Debt Management Practices: Strengthen institutional capacity for debt management and oversight. Develop and implement transparent debt management frameworks that prioritize prudent borrowing practices, optimize debt structures, and mitigate refinancing risks. Enhance debt sustainability analysis and monitor debt-related indicators regularly to ensure fiscal resilience.

Prioritize Infrastructure Investment: Adopt a targeted approach to infrastructure investment, focusing on projects with high economic and social returns. Prioritize investments in critical infrastructure sectors, such as transportation, energy, and healthcare that promote inclusive growth, enhance productivity, and stimulate private sector participation.

Promote Economic Diversification: Accelerate efforts to diversify the economy away from overreliance on oil revenue. Support the development of non-oil sectors, including agriculture, manufacturing, and services, through policy reforms, investment incentives, and infrastructure development. Promote innovation and entrepreneurship to unlock new sources of economic growth and employment opportunities.

Invest in Human Capital Development: Prioritize investments in education, healthcare, and skills development to enhance human capital productivity and competitiveness. Strengthen social safety nets and targeted poverty alleviation programs to mitigate the adverse effects of fiscal consolidation measures on vulnerable populations.

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