Weak Fiscal Performance Heightens Nigeria’s Risk of Debt Distress
President Muhammadu Buhari

Weak Fiscal Performance Heightens Nigeria’s Risk of Debt Distress

Weak fiscal performance has heightened Nigeria’s risk of debt distress amidst ballooning total public debt, printed at N35.47 trillion in the second quarter of the fiscal year 2021.

Africa largest economy is earning far less than the government is spending, the gap which it has continued to bridge 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 light of fresh borrowings to finance capital projects and widening deficit budget, analysts projected that Nigeria’s total public borrowing could cross N50 trillion by the year-end following a plan to securitize the central bank overdraft to Federal Government estimated at about N14 trillion.

Debt Management Office (DMO) audit report for 2019 obtained by MarketForces Africa indicates that Nigeria’s public debts becomes moderate risk two years ago, from a low-risk sovereign rating due to revenue challenge.

As of March, total public debt printed at N33.1 trillion, but expanded to N35.47 billion at the end of the first half of 2021 as the government raised N2.36 trillion in 3-months.

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

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

In 2019, the DMO report shows that total public debt as a percentage of national revenue crossed 211 per cent. By the end of 2020, it moved to 212.3% while DMO is expecting this to moderate to 211.4 per cent in 2021.

However, with more than $10 billion foreign currency loans in the pipeline, the debt to gross domestic ratio is expected to worsen in the mid-to long term while pressure would aggravate on debt to revenue services.

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

Nigeria’s total public debt sustainability conservatively expect this to worsen to 26.1 per cent for 2020, but the pandemic-induced pressure appears to have distorted the plan as Federal Government engages in a borrowing spree in the local market and through CBN overdraft. 

Godwin Emefiele, the Governor of the Central Bank did not refute this in address but claim the apex bank is a lender of last resort.

But analysts said even before the pandemic, Nigeria has been accessing funds from the CBN back door due to its inability to meet its revenue target because of instability in the oil market.

“…the ratio of Public Debt to GDP remains below its benchmark under the Baseline scenario, but the revenue-related debt indicators were relatively high under the shock scenario, indicating incidence of revenue challenges.

“However, 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 would enhance the revenue performance, and thus, improve the Export and Revenue-related indicators and Borrowing Space in the medium to long-term”, DMO noted.

It noted government initiative in the Oil and 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, 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.

Nigeria made interest payments of $1.065 billion on external debt in 2019 amounted compared to US$687.80 million in 2018, reflecting an increase of US$377.27 million or 54.85 per cent, the DMO report shows.

The increase in borrowing costs was attributed to payments made on Multilateral and Bilateral debts, as well as the payment of interest on the Commercial debts.

Weak Fiscal Performance Heightens Nigeria’s Risk of Debt Distress