Nigeria’s debt pile takes toll on fragile earnings

Nigeria is experiencing an unending debt surge that is exposing its revenue generation weakness.

The current administration allocated 80 percent (N5.2 trillion) of its income to service debt between January and November 2022, while income generated amounted to N6.5 trillion, according to Zainab Ahmed, minister of finance, budget and national planning.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said Nigeria’s debt is currently unsustainable because 80 percent of revenue to service debt indicates the country is likely to continue on the cycle of high indebtedness because the government needs to borrow more to run the affairs.

“This is a reflection of the non-sustainability of the debt situation and it will require an improvement in tax and key reforms in the forex market to get more revenue and more investment. Subsidy and all the leakages in the oil sector should be stopped to boost revenue,” Yusuf said.

The Debt Management Office (DMO) expects Nigeria’s debt to hit N77 trillion after the securitisation of loans from the Central Bank of Nigeria and new borrowings this year. Patience Oniha, director general of DMO, said this on Wednesday at the public presentation and breakdown of the highlights of the 2023 Appropriation Act in Abuja.

“There are a lot of discussions on the ways and means. In addition to the significant cost saving in loan service we would get by securitising it, there is an element of transparency in the sense that it is now reflected in the public debt stock,” she said.

The rising public debt stock continues to raise concerns about the nation’s debt sustainability, particularly in view of underperforming revenues.

Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, said the development calls for concern and it is largely because Nigeria has very low net revenue after the removal of petrol subsidy.

“The way forward is to consider removing subsidies this year which will free up a sizeable portion of revenue to be utilised for other purposes. If we remove the subsidy on petrol this year, for instance, we will have a much larger revenue base that will make the debt service to revenue come down to a much lower level,” Ibrahim said.

He added that Nigerians are already buying petrol without subsidy in some parts of the country and few filling stations sell at subsidised rates. “The subsidy is taking a substantial part of the revenue.”

The finance minister reiterated last week the Federal Government’s plan to remove subsidies on fuel which is in line with the 18-month extension announced in early 2022.

According to her, in the 2023 fiscal period, the government has made provisions of N3.36 trillion for fuel subsidy payments to cover the first six months of the year.

In April 2022, the National Assembly approved N4 trillion for petrol subsidy for that year, following two separate requests by the President. The government had shelved a planned move to suspend the subsidy payment a few weeks earlier.

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The International Monetary Fund (IMF) has warned that the Nigerian government may spend nearly 100 percent of its revenue on debt servicing by 2026. They raised concerns over Nigeria’s fiscal conditions, adding that the nation spends 89 percent of its revenue on debt.

Olaolu Boboye, a senior analyst at CardinalStone Partners, said: “We need to tackle revenue challenges by adopting fiscal reforms to boost revenues around improving the efficiency of government-owned enterprises where there could be revenue-generating like the private sector which will lead to massive support.

“Fiscal reforms could come in a way of boosting non-oil revenues beyond taxes like untapped natural resources where if tapped and exported then revenue can be improved. Boosting industrialisation in the company and reform to improve tax by taxing individuals who are not taxed.”

He said subsidy removal will free up money for special spending and spending can be focused on capital expenditure which will have a long run impact on boosting revenue then the debt level will be down.

The World Bank and the IMF have continued to urge the Nigerian government to implement much-needed fiscal reforms such as the elimination of subsidies, and a broadening of the tax base in order to reduce the fiscal deficit.