Dear Subscriber,

In the first quarter of 2023, economic activity lulled significantly due to the naira cash crunch, persistent inflationary pressure, and election uncertainties. Unfortunately, these macroeconomic problems are far from over as households continue to face the worst cost-of-living crisis in decades.

But households are not alone. Corporates are also embattled as margins remain squeezed, while investors keep losing their shirts with widening negative real rates of return on their investments. For instance, the gap between inflation (22%) and a 10-year FGN bond (10%) has increased to -12%, up from -6.4% a year ago. Moreso, month-to-date, the stock market has plunged 5.8%, making investors trade cautiously.

Debt crisis and policy options available to Nigerian policymakers

India’s former prime minister, Jawaharlal Nehru, said that “crises and deadlocks, when they occur, have at least this advantage, they force us to think.”

Nigeria public debt has ballooned by 419% in 10 years, akin to falling into a debt trap. In the same period, productivity growth lulled at 0.2%, infrastructure was stuck at 30% of the GDP and the debt service to revenue ratio exceeded 90%. It doesn’t stop there. Short-sightedly, these borrowed funds have and are still being spent on recurrent items, including repayment of maturing debt obligations.

It is now crystal clear that Nigeria may struggle to honor its debt obligations in 2023, and a sovereign default is unthinkable. With very few options to get out of this precarious situation it is obvious that policy makers are stuck between a rock and a hard place. What is even more glaring is that the time to make the hard and painful short-term choices to achieve long term economic benefits is now. If we wait any longer, too many chickens, burdensome to say the least, will come home to roost.

In this edition of the FDC monthly publication, the FDC Think-Tank analyses these issues and their implications on the economy and also provides several other interesting public policy discussions.

Enjoy your read!