Worries as Nigeria spends N993.5bn on debt servicing in Q1
As Nigeria spent almost N1 trillion on debt servicing payments in the first quarter of this year, experts and financial analyst are worried for the imbalance between debt profile and revenue generation of the country.
The Debt Management Office (DMO) had on Wednesday disclosed that the country’s total public debt increased to N33.11 trillion at the end of Q1 2021 from N32.92 trillion in December.
It said the domestic debt rose to N20.64 trillion as of March 31, 2021 from N20.21 trillion on December 31, 2020 while the external debt fell to N12.47 trillion ($32.86 billion) from N12.71 trillion ($33.348 billion) in December.
The total debt stock is made up of the domestic and external debt stocks of the Federal Government of Nigeria, the 36 state governments and the Federal Capital Territory (FCT).
DMO’s data collated by our correspondent showed that the cost of servicing the country’s debt from January to March this year stood at N993.5 billion.
A total of N612,712,626,144.40 was spent on domestic debt service while $1,003,409,940 (N380.79 billion) was spent on external debt service payments.
An exchange rate of N379.50 to $1 was used by the DMO in converting the external debt service payments to naira.
PwC Nigeria said in a recent report that the increasing cost of servicing debt continued to weigh on the Federal Government’s revenue profile.
It said, “Actual debt servicing cost in 2020 stood at N3.27tn and represented about 10 per cent over the budgeted amount of N2.95 trillion. This puts the debt-to-revenue ratio at approximately 83 per cent, nearly double the 46 per cent that was budgeted.
“This implies that about N83 out of every N100 the Federal Government earned was used to settle interest payments for outstanding domestic and foreign debts within the reference period.
“In 2021, the FG plans to spend N3.32 trillion to service its outstanding debt. This is slightly higher than the N2.95 trillion budgeted in 2020.”
Worried by the imbalance in revenue flow and debt obligations, financial analysts at CSL Research noted that the Federal Government typically exceeds its budgeted deficit for a budget year.
“This is amidst our pessimism on the Federal government’s ability to achieve its Revenue target of N7.89 trillion in 2021 (the highest in the history of Nigeria),” according to the analysts.
They advised the government needs to focus its expenditure on capital projects expected to generate cashflows for the economy.
“Also, there is the need for more collaboration between private enterprises and the government to ease the burden of increasing costs borne by the government. In addition, attention must be paid to the efficiency and effectiveness of government spending,” they added
The Central Bank of Nigeria (CBN) said last year that the rising cost of debt service underscored a precarious liquidity position that could impair the government’s fiscal space, as well as its growth objectives.
The Securities and Exchange Commission had in March described the increasing debt service as a threat to the country.
“Total public debt has increased from N5.24 trillion in 2010 to over N32 trillion in 2020. Still fine at around 20 per cent of GDP (Gross Domestic Product). But rising debt service is a threat. Also shocks to commodities price (are) affecting revenue. And low tax to GDP ratio,” said the Head, Economic Research and Policy Management Division, Office of the Chief Economist, SEC, Afolabi Olowookere.
The International Monetary Fund had said in December that Nigeria needed significant revenue mobilisation — including through tax policy and administration improvements — to create space for higher social spending and reduce fiscal risks and debt vulnerabilities.
It said with high poverty rates and only a gradual recovery in prospect, revenue mobilisation would need to rely initially on progressive and efficiency-enhancing measures, with higher Value Added Tax and excise rates awaiting until stronger economic recovery takes root.