… Trade creditors will receive $6.95 billion in interest. Multilateral creditors $3.24 billion
…Nigeria’s debt is no longer sustainable, experts warn
Unless plans change, the federal government must spend a cumulative amount of $10.19 billion on servicing the country’s external debt over a ten-year period spanning 2021 and 2030, figures obtained from the Bureau of debt management.
The amount converted with the parallel market exchange rate between Naira and Dollar is approximately N7.2trn.
The federal government’s huge appetite for borrowing under the administration of President Muhammadu Buhari had worsened the debt situation in the first quarter of this year, with the country’s outstanding debt rising by N2.04 trillion to reach N41.6 billion in the first three months of this year.
The N41.6tn represents a leap forward from the debt figure of N39.56tn recorded by the country in December 2021.
The Debt Management Office and Finance Minister have come under a series of attacks from pundits and key players in the economy over the country’s rising debt levels .
Nigeria’s debt service to gross domestic product ratio had reached 73% based on figures released by the Ministry of Finance in October last year.
But despite the fact that Nigeria’s debt-to-GDP ratio is one of the highest in sub-Saharan Africa, senior government officials have consistently maintained that the country’s debt profile is still within a sustainable limit.
But the investigation of THE WHISTLER revealed that between 2021 and 2030, a large portion of the country’s revenue would be spent on debt servicing.
The data showed that of the $10.19 billion proposed for debt servicing, about $6.95 billion, or 68.2%, would be spent servicing the commercial part of the debt burden. external, while the balance of $3.24 billion or 31.79% is projected. for the payment of interest on the multilateral debt.
Further analysis of the DMO figures showed that of the $6.95 billion planned for commercial debt service obligation, approximately $6.9 billion representing 99.5% must be spent on debt service. Nigeria Eurobond creditors, while the balance of $25.28 million is earmarked for servicing Diaspora Bonds.
Nigeria returned to the Eurobond market in 2021 and issued bonds worth $15.9 billion, representing 39.8% of outstanding external debt, according to the DMO.
The government’s unexplained preference for Eurobonds at high interest rates, with the associated exchange rate risk, could hurt Nigeria sooner than expected.
For multilateral creditors, the DMO plans to repay African Development Fund (ADF) debt with $114.93 million. African Development Bank (AfDB) $148.06 million, Africa Growing Together Fund (AGTF), $9.48 million, International Fund for Agricultural Development (IFAD) $40.93 million, International Development Association (IDA) ) $1.59 billion and International Monetary Fund $123.36 million.
In addition, a projection of $2.78 million is proposed to be spent on interest on the loan guaranteed by the European Development Fund (EDF), $0.61 million for the debt of the Arab Bank for Economic Development ( BADEA) while $8.31 million and $123.71 million are to be spent on loans guaranteed by the Islamic Development Bank (IDB) and the International Bank for Reconstruction and Development (IBRD).
Further analysis of the DMO data put the projected interest payment for Nigeria’s bilateral debt at $1.07 billion.
Gloomy economic outlook, Nigeria heading for debt crisis—Experts
The huge preference for borrowing has led the IMF to single out Nigeria as one of the countries likely to find itself in debt distress, given the staggering N41,000,000 of outstanding public debt as of March 31, 2022 .
The Fund has warned that unless the federal government puts in place adequate measures to improve revenue generation, all of its revenues could be spent on debt servicing by 2026.
He revealed that, based on a macro-fiscal stress test he conducted on Nigeria, debt interest payments could wipe out the country’s entire revenue over the next four years.
The IMF Resident Representative for Nigeria, Mr. Ari Aisen, during the presentation of the latest regional economic outlook for sub-Saharan Africa in Abuja, warned that Nigeria was at risk of sinking into a critical debt service problem in unless urgent measures are explored to significantly increase revenues.
He said more than 80% of federal government revenue goes to servicing the debt.
Aisien said, “The most critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you are seeing are interest payments as a share of revenue and as you See in terms of the Federal Government of Nigeria’s benchmark, almost 100% revenue is expected to be taken by 2026 through debt servicing.
“So the fiscal space or the amount of revenue that will be needed and that without taking into account any shocks is that most federal government revenue is now actually 89% and that will continue if nothing is made to be taken by debt servicing.
“It is a reflection of the low incomes of the country. The country needs to mobilize more revenue to be able to have macroeconomic stability. It has become an existential problem for Nigeria.
Speaking in an interview with THE WHISTLERThe President of the Chartered Institute of Bankers of Nigeria Abuja Chapter, Prof. Uche Uwaleke, said the huge sum spent on servicing the debt could pose a great danger to the economy.
He said: ‘We spend so much of our income on servicing debt and when that happens what is the implication? You have very little for what you want to do. If you have N1 spending, it means you have 20 kobo for it. So this does not take into account the development of capital projects, because it leaves you with very little and you have to service the debt.
“That’s why every year the government has not failed. The government will always service the debt, so that leaves us with very little and that’s why you see us more in a state of perpetual borrowing.
“You will have to borrow to survive, because as you earn, you use it to pay off your debt and so you will even end up refinancing. Refinancing means that you borrow to pay off your debt. So that’s our situation and I will say that the debt service to revenue ratio is really a problem and that’s why sometimes you hear the Ministry of Finance say that we have a revenue problem.
He suggested that since the government does not earn enough revenue, the time has come for it to adopt a cost-cutting strategy to reduce the cost of governance.
He added: “We don’t earn enough, because if we earn enough, the amount we spend on debt service would not be a problem, but because the income is not as important as it should be, the little we earn, we spend. debt servicing. So it’s a challenge.
“If you add the debt the government owes the Central Bank on N10trn, that also tells you that we have a higher figure. So the stock of debt is quite high, there’s no doubt about it.
“My concern about the debt stock is really that if you look at the mix, moving now to what we should be doing, I think we should be focusing more on concessional lending. The lending comes from multilateral sources, from the World Bank, the International Monetary Fund, the African Development Bank and perhaps bilateral sources. When we go for loans, we should focus on concessional rather than commercial debt.”
Chartered Institute of Finance and Control of Nigeria Registrar, Mr. Godwin Eohoi, said that with the Federal Government spending around 70% of its budget on servicing the country’s debt, any new plan to raise the profile of the country’s debt could lead to a debt crisis. .
He called on the government to stop borrowing in order to avoid the current situation where a large part of the country’s annual budget is devoted to servicing the debt.
“Currently what we continue to do is service the debt using a huge proportion of the annual budget to pay the debt. It’s serious because the money you would have used for other things is now used to pay the debt.
“The debt continues to increase and the service that we perform is quite enormous. We devote more than 70% of our budget to debt service. We shouldn’t even accumulate additional debt beyond what we currently owe.
But the director general of the Center for the Promotion of Public Enterprises, Muda Yusuf, said Nigeria could be on the brink of bankruptcy due to low revenue generation.
He said the huge burden of paying gasoline subsidies and tax leakage are among the factors exposing the country.
He said: “The debt service to revenue ratio for the first four months of the current year is over 100%. This implies that the government’s actual revenue over the period is not sufficient to service the debt.
“Therefore, funding for government operations – personnel costs, overheads, capital expenditures and even part of the debt service will have to come from additional borrowing. This portends serious vulnerabilities for the Nigerian economy.
Yusuf added that the fiscal outlook is clouded by high near-term downside risks, largely due to the huge burden of gasoline subsidy financing, budget leaks and the unsustainable trajectory of public debt.
“The outlook poses significant risks to macroeconomic stability amid heightened inflationary pressures, currency depreciation and increased exchange rate volatility,” he added.