A report published by the World Bank has projected that debt servicing will take up about 75 per cent of Federal Government’s revenue by 2024. The report entitled ‘State debt management in Nigeria: Challenges and lesson learned’, dated April 1, 2020, highlighted institutional and capacity challenges in state debt management in the context of the Nigerian fiscal federalism system.
The report was part of a series produced by the Macroeconomics, Trade, and Investment Global Practice of the World Bank, led by Lilia Razlog, Yue Lee, Ying Li, and Jaime Bozo. It noted that the findings, interpretations, and conclusions expressed in the series were those of the authors and should not be attributed to the World Bank. Highlighting ‘National and State-Level Debt Dynamics’ in Nigeria, the report observed that interest on loans amounted to 60 per cent of Federal Government’s revenue by 2018.
Latest figures released by the Debt Management Office indicate that the Federal Government and the 36 states, as well as the Federal Capital Territory, owed a total of N27.4tn as at December 2019. Also, data from the website of the Central Bank of Nigeria indicated that Nigeria spent $ 1.12bn on external debt service payment in 10 months, between January and October 2019. The report, which was obtained by our correspondent on Wednesday, disclosed that Nigeria’s public-debt-to-GDP ratio had increased significantly in recent years.
Driven by rising external debt, the debt-to-GDP ratio grew from 12.7 per cent in 2013 to 19.2 per cent in 2018. In the same vein, the share of external debt increased steadily from 14 per cent of total debt to more than 25 per cent within the same period. The report said, “A debt sustainability analysis conducted by the IMF as of end-2018 indicates that while Nigeria’s public debt-to-GDP ratio remains relatively low compared with other frontier market economies. The debt ratio is expected to rise under baseline mainly driven by the Federal Government fiscal deficit.
“It is projected that interest payment will rise to close to 75 per cent of Federal Government revenue by 2024 from 60 per cent in 2018.” The Federal Government realised N3.95tn as total revenue in 2018 out of which $1.47bn and N1.8tn were spent in servicing external and domestic loans respectively. The report indicated that under the current policies, the Federal Government would face growing pressure to meet its large financing needs in the medium term. “The debt sustainability is vulnerable to the slow growth and widening fiscal deficit,” the report said.
Although the Federal Government has insisted that Nigeria does not have a debt problem, despite misgivings over the steady rise in the country’s debt portfolio, it has been widely accepted that the cost of debt servicing was unsustainable. The high cost of debt servicing has been blamed on the country’s weak revenue generating capacity. The Debt Management Office recently acknowledged that the Federal Government borrows to bridge revenue gap. According to the report, by the end of 2018, Federal Government debt accounted for more than three-quarters of total public debt, while state governments’ debt was at 21 per cent.
Close to one-third of state debt within the period consists of external loans on-lent by the Federal Government in foreign currency and on identical terms to the original loan.