Nigeria’s Growing Budget Deficit: Debt Profile Forecasted to hit ₦37 trillion
Nigeria’s growing budget deficit will raise the nation’s debt profile to ₦36.89 trillion in 2021, analysts have hinted in a forecast.
A growing number of financial experts expressed concern over rising budget deficit despite low revenue accretion and high debt cost.
In the third quarter of 2020, total public debt rose to ₦32.2 trillion as government ramped up borrowing due to the outbreak of coronavirus pandemic.
In 2019, debt service to revenue ratio printed at 60.5%, according to data Budget Office, CSL Stockbrokers limited.
This was more than twice of the debt to revenue ratio reported in 2014.
Though, data showed that the ratio had peaked at 79.8% in 2017 and 79.2% a year after.
Analysts at CSL Stockbrokers in a macroeconomic commentary said the Federal Government typically exceeds its budgeted deficit for a budget year.
Recently, President Muhammadu Buhari signed the 2021 appropriation bill of N13.59 trillion into law alongside the Finance Bill 2020 to run concurrently.
According to the Budget Office of the Federation, the annual budget tagged “Budget of Economic Recovery and Resilience” is expected to reposition the Nigerian economy on the path of recovery, growth and resilience.
The appropriation bill shows an expected revenue of N7.99 trillion and aggregate estimated expenditure of N13.59 trillion.
CSL Stockbrokers said this implies a budget deficit of N5.60 trillion which would be financed mainly by borrowings of N4.69 trillion, privatization proceeds of N205.15 billion and finally project linked bilateral & multilateral loans of N709.69 billion.
A further analysis of the 2021 appropriation bill shows that about 24% of the total expenditure is designated for debt servicing.
Over the years, the Federal Government has struggled to finance its budget mainly due to low revenue, which analysts considers susceptible to oil price volatilities.
After the Organisation for Petroleum Exporting Countries and allies (OPEC+) Monday meeting fail, global prices of Oil receded on Tuesday.
Brent crude dropped off to $50 due to inability of the members of the Cartel to arrive on consensus of production level for February.
CSL noted that Nigerian Government only generated 68% of its prorated budgeted revenue of N4.75 trillion as at July 2020 despite adjusting the official exchange rate for revenue conversion to N360/US$1 from N306/US$1 previously.
Analysts said this resulted in an increasing budget deficit for the country and increased borrowing by the government from both domestic and international bodies.
As at the end of September 2020, the nation’s public debt stood at a total of N32.2 trillion and with the planned borrowing of N4.69 trillion to finance the budget deficit, total public debt is expected to rise to about N36.89 trillion by December 31, 2021.
Whilst debt to GDP ratio remains within the acceptable threshold, analysts at CSL Stockbrokers are increasingly concerned about the nation’s debt service to revenue ratio.
The firm said the pattern shows the country may be heading towards a debt crisis should the borrowings continue in face of limited finances to support existing debt obligations.
“We note 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 N7.99tn in 2021 (the highest in the history of Nigeria).
“In our opinion, the government needs to focus its expenditure on capital projects expected to generate cash flows 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”, CSL Stockbrokers stated.
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Nigeria’s Growing Budget Deficit: Debt Profile Forecasted to hit ₦37 trillion
