September 20, 2022/CSL Research
The Debt Management Office (DMO) in its latest debt profile released stated that Nigeria’s total public debt stock increased to N42.85tn in the second quarter of the year from N41.60tn in the first quarter of 2022 and N39.56tn as of December 2021. The public debt stock covers the total domestic and external borrowings of the Federal Government and State Governments, including the Federal Capital Territory. Based on the data obtained, the increase in total public debt stock includes new domestic borrowing by the FGN to partly finance the 2022 budget deficit and new domestic borrowings by state governments and the FCT. The absence of new external borrowings in the review period (Q2 2022) is a testament to the unfavorable international debt market, limiting the government’s access to it.
Based on FY 2021 GDP data at current prices, the debt to GDP ratio comes to about 24.7%, below Nigeria’s self-imposed limit and IMF benchmark of 40% and still significantly below those of African peers like Ghana (78.3%) and Kenya (69.1%). However, with the inclusion of borrowings from the CBN (Ways and means- estimated at 19.91trn as of June 2022) and the stock of AMCON debt (estimated at about N4.4trn), the debt profile would be about N67.2tn, and debt to GDP ratio comes to c.38.7%. This raises strong debt sustainability concerns.
The relatively moderate debt level of the country has increasingly become vulnerable due to high interest payments, which continue to absorb a significant portion of Federal Government
revenues. As of April 2022, Nigeria’s debt service to revenue was estimated at 118.9%, now showing that the country is borrowing to refinance existing debt obligations.
Nigeria’s fiscal deficit has surpassed the target by an average of c.65% over the last 5 years due to ambitious revenue estimates and volatile crude oil prices. Government expenditure for 2022 was estimated at an all-time high of N17.32 trillion (inclusive of supplementary budget), and revenue projected at N9.97 trillion will likely underperform estimate. Persistent fiscal spillage has resulted in debt servicing to revenue averaging 70% over the last 5 years.
This trend will likely persist and calls for fiscal consolidation. We reiterate the need for the
government to cut expenditure by proposing reforms that could scale down the cost of governance.
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