September 21, 2021/CSL Research

Based on media reports, the Director-General of the Debt Management Office (DMO), Patience Oniha, during a virtual media presentation, announced that the country’s debt stock level had risen to N35.5tn as of June 2021 from N33.1tn in March 2021. The debt service to revenue ratio sat precariously at 98% as of May 2021. A breakdown of the debt stock revealed that the debt from foreign sources increased to N13.7tn as of June from N12.5tn in March 2021. Similarly, local debts rose to N21.8tn as of June from N20.6tn in March 2021. Consequently, debt to GDP ratio rose to 21.9% in June 2021 from 21.1% in March. Though the ratio remains well below the revised DMO’s borrowing limit to GDP ratio of 40% (25% previously), the debt service to revenue ratio remains worrisome. The DMO revised the borrowing limit to GDP ratio to accommodate new borrowings and the proposed securitization of the CBN’s Ways and Means.

Nigeria’s rising debt profile remains a topical discourse. Since the economy slipped into recession in 2016, sub-optimal performance in revenue targets and ballooning expenditures has forced the government to rely heavily on borrowings to finance its fiscal deficit. This has led to a surge in the nation’s debt burden with its attendant impact on debt servicing costs, raising concerns on debt sustainability. With the current depreciation of the local currency, pressures from servicing the increased external borrowings will keep debt servicing costs elevated in the medium term. Also, the expected Eurobond issuances will further intensify pressure should actual revenue keep lagging expected performance.

We are increasingly worried about the government’s rising debt profile, anticipated to increase given the planned Eurobond offering. The Federal Government is also seeking approval to raise US$4bn and €710m to fund the 2021 budget deficit. Despite the country’s poor revenue-generating capacity, overheads and statutory spending have continued unabated, amid a growing infrastructure deficit. Clearly, there is a need to take decisive steps to curb expenditure. The government will also need to pay more than lip service to the age-long clamour to improve revenue generation through diversification of its revenue-earning sources. The agriculture and mining sectors hold huge untapped revenue potentials.