Moody’s Ratings has projected a significant increase in Nigeria’s interest spending, estimating a rise of 1% of the Gross Domestic Product (GDP) in 2024. This forecast comes as tighter monetary conditions elevate government interest rates for local currency borrowing, which remains the primary funding source due to a constrained external funding environment.
According to Moody’s latest outlook for Nigeria, this surge in interest rates, from an average of 12.8% in 2023 to 19.7% in the first five months of 2024, will drive interest spending to consume 36% of government revenue.
The credit rating agency highlighted several risks to Nigeria’s fiscal consolidation plans, including the higher cost of oil subsidies and the potential introduction of supplementary measures to support those most affected by the inflation shock. These factors pose a threat to the country’s economic stability, leading to ever-increasing interest expenses.
Moody’s further expects Nigeria’s fiscal deficit to widen significantly to around 7% of GDP in 2024 due to multiple obstacles to fiscal consolidation. It noted that institutional weaknesses and heightened social risks, exacerbated by inflation affecting a population with high poverty rates and limited access to basic services, are critical credit constraints.
While the new administration is attempting to improve tax compliance to increase revenue, Moody’s suggests that these efforts will unlikely offset the ongoing spending pressures.
