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Nigeria moving towards high debt distress risk – Rewane

Nigeria approaching fiscal cliff, says Rewane

Nigeria is moving towards high debt distress risk, Bismarck Rewane, chief executive officer of Financial Derivatives Company Limited has said, as the federal government’s debt service costs surpassed its revenue, pushing the fiscal deficit to N3.09 trillion in the first four months of 2022.

The N1.9 trillion spent on debt servicing in the period was 18 percent more than the N1.6 trillion the government earned, according to data provided by the Budget Office.

“Nigeria is moving towards high debt distress risk as debt service rises faster than fiscal revenue,” Rewane said during his presentation at the LBS monthly breakfast meeting.

The projected debt service for the four-month period was N1.2 trillion, 37 percent below the actual amount spent on servicing debts, while the actual revenue was 103.7 percent below the projected amount of N3.3 trillion.

This is the first time the country’s debt service-to revenue ratio will exceed 100 percent.

“This signals a debt management problem,” Rewane added.

Despite the obvious debt management problem, the economic expert is of the view that “Nigeria’s debt level is still sustainable.”

Read also: Weak naira adds N548bn to Nigeria’s external debt

Nigeria’s debt-to-gross domestic product ratio was 37 percent as at 2021, up from 23.4 percent in 2016 and is projected by Rewane to increase further to 37.4 percent, which is lower than the 55 percent advised by the International Monetary Fund and the World Bank for countries in Nigeria’s peer group.

Over the years, Nigeria’s debts have continued to rise, with the cost of servicing these debts becoming more expensive due to the surge in global interest rates, and the weakening naira against dollars.

Between January and April this year, Nigeria’s oil revenues slumped 51 percent compared to budget estimates to N1.23 trillion, as expected benefits from rallying oil prices continue to elude the country due to significant oil production shortfall and petrol subsidy burden.

Nigeria incurred an estimated petrol subsidy of N2.1 trillion in the first six months of this year, according to the Nigerian National Petroleum Company.

For the first time in nearly half a century, non-oil revenue overtook petrodollars to become the main source of the Nigerian federal government’s revenue in 2021, and that dominance has grown since then.

Within the first four months of 2022, non-oil revenue surpassed oil revenue by 54.9 percent to N633 billion while revenue from oil was N285.4 billion.

Meanwhile, the government spent N4.72 trillion, which was about 22.2 percent lower than the N5.77 trillion spending estimate for the period. This was also about 190 percent higher than the earned revenue.

Read also: DMO reassures Nigeria not in debt distress

BusinessDay findings show that debt servicing alone took as much as 41 percent of the total spending, while recurrent expenditure accounted for 27 percent (N1.26 trillion), leaving N773.6 billion for capital expenditure (16 percent).

This implies that the bulk of the money earned and borrowed by the government goes to debt servicing, personnel expenses, and overhead costs.

The World Bank warned in June that a fiscal time bomb could explode in Nigeria owing to the soaring petrol subsidy and plunging crude oil production in the country.