Nigeria’s debt to balloon further while Angola’s is seen falling says World Bank report

Africa’s two biggest oil producers, Nigeria and Angola are on a contrasting debt trajectory, with Nigeria’s ballooning while Angola is seeing a fall in its debt, according to the World Bank.

This new report by the World Bank released Tuesday, paints a depressing picture for the finances of Africa’s most populous nation. The World Bank’s biannual Africa’s Pulse report says while Nigeria will see its debt service-to-revenue ratio surge to 102.3%, Angola’s public debt will decline to 61.9% of gross domestic product this year from 85.7% in 2021.

In the report, the World Bank also cut Nigeria’s growth forecast for 2022 to 3.3% from 3.8%, while it said Angola will expand 3.1% this year from 0.8% in 2021.

President Muhammadu Buhari who on Friday will lay a highly controversial budget before the National Assembly, has refused to remove fuel subsidies that may result in the nation’s budget deficit widening to 12.4 trillion naira ($28 billion) next year alone — almost three times total revenue. In Angola, the currency has surged and the government has come up with policies to attract overseas investors.

“Public debt in Nigeria is a concern,” the World Bank said in the report. “The combination of low production in the oil industry and unsustainable subsidies is one of the main obstacles to attaining debt sustainability.”

Nigeria spent 982 billion naira in the first quarter subsidizing gasoline, providing the nation’s drivers with among the cheapest pump prices in the world. The World Bank and International Monetary Fund have repeatedly urged the government to remove the subsidy.

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Unlike Nigeria, more than two-thirds of sub-Saharan African nations with debt above 70% of GDP don’t have mining or other resources, according to the report.

The World Bank expects the region’s economic growth to slow to 3.3% in 2022 from 4.1% last year.

Nigeria must cut gasoline subsidies and boost revenue collection to avoid a sharp deterioration in government finances next year, the government’s budget office said.

The budget deficit may rise to 12.4 trillion naira ($29 billion) next year — almost three times total revenue, or 5.5% of gross domestic product — if the government continues paying fuel subsidies, according to a medium-term expenditure framework published on the office’s website. The subsidies will cost 6.72 trillion naira, it said.

The budget which Buhari will present on Friday will show that the shortfall would balloon from a projected 7.35 trillion naira in 2022 despite plans not to fund capital expenditure in 2023 if the subsidy remains, the budget office said. The country’s Fiscal Responsibility Act sets a budget-deficit threshold of 3% of GDP.

Only 5.9% of projected government revenue of 6.34 trillion naira will come from oil in 2023 “as it will be eroded by the fuel subsidy,” while the balance of funding will come from non-oil sources. Even in a situation in which the government does away with the subsidy by June, the budget deficit would still exceed 5% of gross domestic product, the office said.

With limited headroom for external borrowing, the government in Nigeria plans to fund the deficit mainly from local capital markets. Domestic borrowing currently accounts for 60% of public debt, estimated at 41.6 trillion naira in March.