Author: philip
- The total amount paid towards debt decreased by 8.2% to N3.87 trillion.
- According to the DMO, the amount of debt owed is within acceptable limits.
- NACCIMA believes that this situation is unfavorable for a developing economy.
- Analysts claim that an increase in debt negatively impacts economic growth.
- Babajide Komolafe, Emma Ujah, Peter Egwuatu, Yinka Kolawole, and Nkiru Nnorom contributed to this report as economy editors.
he Debt Management Office (DMO) announced that Nigeria’s public debt has increased by N6.69 trillion or 22.47 percent to N46.25 trillion ($103.11 billion) at the end of 2022, up from N39.56 trillion ($95.77 billion) at the end of December 2021. The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has warned of the risks this poses to the economy. However, there was an 8.3 percent decline in the amount spent on debt service in 2022, falling to N3.87 trillion from N4.22 trillion spent in 2021. The DMO reported that the public debt figure includes the total debt owed by the federal and state governments, as well as the Federal Capital Territory.
he DMO claims that Nigeria’s debt figure reviewed is at 23.20% of the GDP, which is well within the limits set by the government and other international organizations. The Domestic Debt Stock is at N27.55 trillion ($ 61.42 billion), while the Total External Debt Stock is at N18.70 trillion ($ 41.69 billion). The increase in debt stock is due to new borrowings by the government to finance their budget deficits and specific projects, along with the issuance of Promissory Notes to settle Federal Government liabilities.
The Total Public Debt Stock has increased due to New Borrowings by the FGN and sub-national governments, issuance of Promissory Notes by the FGN to settle liabilities, and to fund budget deficits and execute projects. However, the DMO is optimistic that the government’s efforts to increase revenues from oil and non-oil sources through initiatives such as the Finance Acts and the Strategic Revenue Mobilization initiative will yield higher revenue to support debt sustainability. The Federal Government’s Domestic Debt as of December 31, 2022, is N 22.210 trillion, held in various instruments. In the first quarter of Q1’22, total debt service payment amounted to N989 billion, comprising domestic debt service payment of N66.9 billion and external debt service payment of N320 billion or $694 million.
The Q2’22 total debt service payment decreased by 4.9% QoQ to N941 billion, with a domestic debt service payment of N665 billion and an external debt service payment of N275.95 million or $597.95 million. However, the Q3’22 total debt service payment increased by 41.1% QoQ to N1.33 trillion, with a domestic debt payment of N820.6 billion and an external debt payment of $513.8 million or $801.23 billion. The Q4’22 total debt payment service declined by 54.4% QoQ to N606.97 billion, comprising a domestic debt payment of N406.77 billion and an external debt service debt payment of N200 billion or $312.27 million. NACCIMA criticized these results as being unsuitable for a developing economy.
NACCIMA’s Director General, Mr. Sola Obadimu, expressed concern over Nigeria’s rising public debt profile. He stated that despite the debt-to-GDP ratio being low at 23%, the increasing debt servicing and fuel subsidy are wiping out the national budget, which is not suitable for a developing economy. He emphasized the need for fiscal discipline and getting value for money spent.
The indirect effects of rising debt include inflation and lower quality of life. Without proper action, a debt crisis is possible. To avoid this, we must exercise fiscal discipline and accountability by getting good value for money spent. A rising debt profile also leads to revenue inadequacy for key sectors of the economy and undermines economic growth.
Heavy debt burden limits economy’s room for maneuver during downturns, while rising debt service costs and inadequate revenue may lead to more borrowing, raising public debt further. DLM Advisory’s Alex Ibhade warns that debt servicing leaves little money for critical infrastructure, hindering growth. David Adonri, Vice Chairman of Highcap Securities, warns that Nigeria’s macroeconomic condition is precarious due to its public debt stock.
Adonri expressed concern about Nigeria’s debt situation, questioning whether the reported N46.3 trillion public debt stock includes the N22 trillion Ways & Means advances from CBN. They feared that Nigeria may end up like Ghana if the debt level is combined with the new debt for this year to finance the budget deficit, leading to a precarious macroeconomic condition. Ekechukwu suggested that budget deficits must be reduced to alleviate the burden of Nigeria’s debt profile, which stood at N46.25 trillion as of 2022 year-end, with a debt-to-GDP ratio of 23.2%. Nigeria’s credit rating is also declining among major international rating agencies
The increase in debt is due to a large budget deficit that lacks funding. Expenses are rising, but revenue remains stagnant. To reduce borrowing, the country needs a budget that aligns with its income profile. The cost of governance must be reduced, and insecurity must be addressed. Tax collection should be optimized, and revenue-generating agencies must be held accountable for their earnings. Fidelity Securities suggests that the government should increase revenue.
Fidelity Securities’ Head of Research and Investment, Victor Chiazor, expressed concern about the country’s debt profile. He stated that servicing the debt is consuming most of the country’s revenue, and the government needs to raise revenues to reduce the debt service to revenue ratio. Without improved revenues, the government will be forced to borrow more for recurrent expenses instead of capital projects. To reduce the debt service ratio and build a sustainable economy, the country must increase its domestic and forex earnings.
According to Tajudeen Olayinka, CEO of Wyoming Capital and Partners, a country’s debt profile depends on its economic focus and structure. If the government prioritizes public sector projects, they will accumulate more debt, while a private sector focus requires less public debt and more private capital. Olayinka suggests that the way forward is for the private sector to take the lead in driving economic growth, job creation, and productivity. This should be the focus of the incoming administration of President-Elect Asiwaju Bola Ahmed Tinubu, as the economy requires urgent attention.
ARM Securities predicts higher borrowing costs for Nigeria as investors may now price Nigerian-issued debt instruments at a higher yield due to the country’s mounting debt service amount and underperformance of revenue. This could lead to concerns about the sustainability of Nigeria’s debt position and limit potential Foreign Portfolio Inflow (FPIs) if there is another downgrade of Nigeria’s credit rating.
The government needs to find ways to stop spending money on unproductive things, especially petroleum subsidy, which is causing major problems for the federal government. The increasing debt could motivate the government to remove the subsidy by May 29th, 2023, which could make core and food inflation worse.
