Debt servicing is taking a better part of Nigeria’s fiscal arrangement as the Federal Government projected to spend up to N10.43 trillion to service debts by 2025.
This is contained in the just-released 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper.
This is a 182.66 per cent increase from the N3.69 trillion budgeted for debt service in 2022.
To worsen the situation, the country is also battling with corresponding revenue generation rate which has forced the government at the centre to impose new taxes on Nigerians such as the proposed 5% excise duty on the telecoms industry.
So far, multilateral agencies and economists have constantly warned the Federal Government about the rising cost of debt service, which can trigger a crisis for the country.
However, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, and the Director General of the Debt Management Office (DMO), Patience Oniha, have insisted that the country does not have a debt problem but a revenue challenge.
Such fiscal imbalance has put the Africa’s largest economy in a precarious situation such that in the first four months of 2022, the cost of servicing debt surpassed the federal government’s retained revenue by N310 billion.
Meanwhile, in a document by the DMO DG recently obtained by our correspondent, the DMO stated that high debt levels would often lead to high debt services and affect investments in infrastructure.
According to the DMO DG, “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”
In the document, she stressed the need for debt sustainability, which she defined as the ability to service all current and future obligations, while maintaining the capacity to finance policy objectives without resort to unduly large adjustments or exceptional financing such as arrears accumulation, debt restructuring, which could otherwise compromise the economy’s stability.
Speaking at the launch of the World Bank’s Nigeria Development Update titled, ‘The urgency for business unusual,’ held recently in Abuja, the finance minister had admitted that Nigeria was struggling to service its debt.
She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”
The International Monetary Fund (IMF) had earlier warned that debt servicing might gulp 100 per cent of the Federal Government’s revenue by 2026 if the government failed to implement adequate measures to improve revenue generation.
According to the IMF’s Resident Representative for Nigeria, Ari Aisen, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts might wipe up the country’s entire earnings in the next four years.
Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue, and as you see us in terms of the baseline from the federal government of Nigeria, the revenue of almost 100 per cent is projected by 2026 to be taken by debt service.
“So, the fiscal space or the amount of revenues that will be needed and this, without considering any shock, is that most of the revenues of the Federal Government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”
Less than two months after Aisen’s warning, the finance minister disclosed that Nigeria’s debt service cost surpassed its revenue in the first four months of this year.
Debt service gulped N1.94 trillion between January and April 2022, as against a retained revenue of N1.63 trillion.
According to a recent report, the Federal Government exceeded its debt service allocation by N1.15 trillion for the period between January and November 2021.
A copy of the public presentation of the 2022 approved budget by the finance minister showed that the Federal Government allocated N3.32 trillion for debt servicing in 2021.
However, the minister’s presentation document showed that a total of N4.2 trillion was spent on debt servicing in 11 months, indicating a difference of N1.15 trillion or 37.9 per cent of the money allocated for debt servicing for the period.
Earlier report also reported that Nigeria’s debt servicing bill increased by 109 per cent, from N429 billion in December 2021 to N896 billion in March 2022.
A report by the Nigerian Economic Summit Group and the Open Society Initiative for West Africa has disclosed that Nigeria and 10 other Economic Community of West African States countries are currently in debt distress based on debt sustainability analysis.
It was further disclosed in the report that public debt accumulation for these countries was becoming unsustainable and needed to be addressed to avert the looming debt crisis.
The report warned that the possibility of a debt crisis in Nigeria would adversely affect public and private investments, as well as other sectors of the country.
The World Bank recently said that Nigeria’s debt, which might be considered sustainable for now, was vulnerable and costly.
According to the Washington-based global financial institution, the country’s debt was also at risk of becoming unsustainable in the event of macro-fiscal shocks.
