Analysts: Nigeria’s Debt Service-to-Revenue Ratio at 83.0% Worrisome

Nume Ekeghe

Following the recent disclosure by the Debt Management Office (DMO) on Nigeria’s Debt stance, analysts have stressed that Nigeria’s debt is at the highest level and is worrisome at 83 per cent debt service-to-revenue ratio.

Analysts at Afrinvest in their latest report titled, “Q3: 2022 Public Debt Statistics… Sustainability Strategy Hanging by a Thin Line,” released over the weekend, stated that Nigeria’s public debt stock excluding Ways and Means (W&M) liability to the CBN rose by N1.3 trillion (tn) q/q to N44.1trillion, the highest level on record with domestic debt pegged at N26.9 trillion and external debt at N17.2 trillion.

The analysts stated that between January and the end of September 2022, the public debt profile increased by N4.5tn, with domestic borrowing accounting for 71.3 per cent of the new increase. 

The analysts stated, “Annualising the 9M: 2022 nominal GDP of N144.6tillion, Nigeria’s debt as a percentage of GDP is estimated to reach 35.2 per cent by end of 2022 in a blue-sky scenario a close shot from DMO’s sustainable mark of 40.0 per cent. Also, we estimate that in a base case scenario, the deficit to GDP rate would settle around 3.7 per cent by year-end implying a sustained breach of the 3.0 per cent cap stipulated in the 2007 Fiscal Responsibility Act.

“Equally worrisome, the debt-service-to-revenue ratio, a measure of liquidity remains disproportionately high at 83.0 per cent as of Q3:2022. Sadly, economic sabotage has robbed Nigeria of the windfall gains from the oil price rally in 2022. Based on our estimate, the debt service-to-revenue ratio could touch 91.8% by year-end.”

They reiterated that the outgoing administration is less likely to implement any fiscal reform that could remedy the deteriorating debt sustainability situation in its remaining few months. 

“Hence, we posit that budgetary reform, fiscal prudence, and revenue innovation would be key if the next administration would rescue the weakening debt sustainability trend. Over the same period, FG’s borrowings via the W&M window also increased by N6.3 trillion to a cumulative sum of N23.8 trillion, bringing the total public debt stock as of Q3:2022-end to N67.8 trillion.

“This is not surprising given FG’s dismal revenue performance over the period. For context, data from the Federal Ministry of Finance, Budget and National Planning (FMFBNP) revealed that the FG actual revenue grossed N4.2 trillion in 9M:2022 against the pro-rata target of N6.7 trillion.

“Although actual expenditure was lower by 17.2 per cent compared to the N11.6 trillion intended, the actual deficit, N5.3 trillion, was still 8.8 per cent higher than projected. Hence, the resultant higher borrowings grossed N10.8 trillion, “they said.