Nigeria’s Debt Profile May Hit N50trn By December

With Nigeria’s current rate of debt accumulation, the country’s debt profile may hit the N50 trillion threshold by year-end. That would amount to $120 billion. As of the end of the second quarter of this year, Nigeria’s debt profile stood at N35.47 trillion, the equivalent of $86 billion.

The projection is strengthened by a plan to securitize the central bank overdraft to federal government estimated at almost N15 trillion.

As of March, the country’s total public debt stood at N33.1 trillion, but increased to N35.47 billion at the end of the first half of 2021 as the government had raised N2.36 trillion in 3-months.

Bent on improving the country’s infrastructure, the loans are meant for development, according to government. However, experts asseverate that the funding gap now covers some recurrent expenditure as debt service alone consumes approximately 91 percent of the revenue.

The Nigerian economy is earning less than the government is spending. The gap has had to be bridged with both local and foreign loans amidst weak macroeconomic metrics.

Attempts to boost non-oil revenue has not produced a significant result as the Nigerian government still relies on receipts from crude oil for its spending plans.

In the first five months of the year, the Budget Office hinted in a performance report that revenue underperformed by about 50 per cent. Earlier in the year, Nigeria expended more than 90 per cent of revenue generated on debt service.

Though Nigeria’s total public debt remains below 55 per cent set by the World Bank for its fiscal sustainability measure, debt as a percentage of government revenue have continued to widen.

It may be recalled that in 2019, the Debt Management Office (DMO) report showed that total public debt as a percentage of national revenue crossed 211 per cent. By the end of 2020, it increased to 212 per cent, while the DMO is expecting this to moderate to 211.4 per cent in 2021.

Total public debt service paid from Nigeria’s revenue was 25.2 per cent in the fiscal year 2019, according to DMO audited report for the year.

“The ongoing efforts by the government towards improving revenue generation and diversifying the economy to enhance exports, through various initiatives and reforms in the key sectors of the economy is expected to enhance the revenue performance, and thus, improve export and revenue-related indicators and borrowing space in the medium to long-term,” the DMO has noted.

It expressed future relief based on the government initiative in the Oil & Gas, Agriculture and Solid Minerals sectors, Tax Administration and Collections, as well as the strategic revenue Growth Initiatives, and, with the recent signing into law of the Finance Act by President Muhammadu Buhari.

While noting that there is some space to borrow based on the country’s current revenue profile, the DMO said the ratio of external debt service-to-revenue trends towards the fiscal threshold and breached substantial space mark by 2021.

“With the concerted efforts by the government to improve revenue through its various initiatives and reforms in the key sectors of the economy, the country’s borrowing space is expected to be enhanced considerably”, the agency added.

Meanwhile, Former President Olusegun Obasanjo has faulted the federal government’s plan to source fresh external loans.

Obasanjo said the FG was accumulating debts for the next generation, describing it as “criminal.”

President Muhammadu Buhari had on Tuesday submitted a request for approval to obtain fresh external loans of $4.054 billion and €710 million to the national assembly.

The request was in a letter read by Senate President Ahmad Lawan on the floor of the upper legislative chamber.

In the letter, Buhari explained that owing to “emerging needs,” there is a need to raise more funds for some “critical projects”.

Speaking to Channels TV on the sidelines of an event in South Africa, Obasanjo said that if the existing debt is left unserviced or unpaid, it might become a problem for successive administrations.

While noting that borrowing is not a problem, the former Nigerian president said what could be a problem would be what one is borrowing for and the plan or capacity to pay back.

According to the former president, borrowing for recurrent expenditure is the “height of folly”.

“If you want to build a commercial house and you go and borrow money, and you have 50 percent of your own money, and you borrow 50 percent and in five years, you pay the 50 percent that you borrowed. That is a wise thing to do,” he said.

“But if you have to go and borrow money for you to be able to feed yourself and your family, that is a stupid thing to do.

“So, if we are borrowing for recurrent expenditure, it is the height of folly. If we are borrowing for development that can pay for itself, that is understandable. Then the payment, how long will it take to pay itself?

“But we are borrowing and accumulating debt for the next generation and the next generation after the next; it is criminal, to put it mildly. What are we borrowing for?”

He recalled that during his tenure in 1999, the country was spending $3.5 billion to service debts that kept on increasing.

“When I came into government as elected president, we were spending $3.5 billion to service debts. Even with that, our quantum of debts was not going down,” he added.

 

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