Nigeria’s public debt stock, which includes external and domestic debt, rose by 20.81 percent in one year, driven by weak naira, rising inflation and revenue leakages.
Africa’s largest economy’s public debt increased to N42.84 trillion ($ 103.31 billion) in the second quarter of this year from N35.46 trillion ($86.57 billion) in the same period last year, latest data from the National Bureau of Statistics (NBS) show.
A breakdown of the public debt shows that external debt rose from N13.71 trillion ($33.46 billion) in Q2 2021 to N16.61 trillion ($40.06 billion) in Q2 2022.
The domestic debt increased to N26.23 trillion ($63.24 billion) in Q2 2022 from N21.75 trillion ($53.10 billion) in the same period last year.
One of the contributors to the increase in the debt figures is an increase in inflation rate, especially the general increase in the price of the things the government is spending money on, according to Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited.
Other factors, according to him, are the depreciation in the value of the naira, leading to increase in the local prices of imported goods, coupled with its ripple effects on the prices of other locally made goods, and revenue leakages, which make borrowing an alternative to meet certain expenses.
President Muhammadu Buhari recently presented the 2023 Federal Government budget proposals at a joint session of the National Assembly in Abuja.
The proposed revenue and expenditure budgets for 2023 are N9.73 trillion and N20.51 trillion, respectively, resulting in a N10.78 trillion fiscal deficit, which represents 4.78 percent of GDP.
“There is a growing gap between revenue and expenditure, and the gap has been widening and also reflecting in the growth of the fiscal deficit,” said Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise.
He was concerned that the challenge is the capacity of the government to fund the budget. “There is a projection of N9.73 trillion revenues but the trend over the past has been revenue underperformance,” Yusuf said.
He said this has created a huge gap for funding and it has to be filled by borrowing. “That is why the debt has been increasing – the regular debt, treasury bills, bond, foreign borrowing and the one that has not been captured – the Ways and Means Advances.
“Expenditure is growing but revenue is not growing. To address this, there is a need to address some key fundamental issues, particularly in terms of reforming the oil and gas sector so that the amount spent on subsidy can be reduced and a lot more products can be refined locally.”
He said the revenue needs to be optimised without necessarily raising taxes, adding that the exchange rate used to compute the budget needs to be adjusted because it is not realistic and that the oil output assumption needs to be looked into.
Taiwo Oyedele, head of tax and corporate advisory services at PwC, said Nigeria’s rising public debt is driven majorly by the huge budget deficits, especially in the past few years.
According to him, government expenditures in many areas such as security, subsidies, social interventions, recurrent expenditure and debt service have risen exponentially faster than the increase in revenue.
He said: “In fact, oil revenue has been on the decline over the same period due to low oil prices and more recently due to oil theft resulting in production shortfalls.
“Government needs to take urgent and deliberate steps to address the problem by ensuring zero-based transparent budgeting, prudent spending while addressing leakages and optimising revenue mobilisation.”
On what this means for the economy, he said a sustained rise in public debt amid low revenue profile may affect the country’s sovereign credit rating, making it even more difficult and costly to borrow with concomitant implications for the private sector and the broader economy.
Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, said the increase in debt stock is the direct consequence of rising budget deficit, which was in excess of the 3 percent to GDP limit specified in the Fiscal Responsibility Act during the period.
Read also: Avoid debt trap by creating long-term financial responsibility plans
He said one obvious implication of rising government debts, which he described as largely non-self-liquidating, “is increase in debt burden, which manifests in unsustainable debt service ratios.”
“The huge debt service obligations come with huge opportunity costs as they crowd out funds that could have been applied to critical sectors of the economy. For example, in the 2023 proposed budget, a whopping N6.3 trillion is appropriated for debt service alone – an amount higher than the capital provision of about N5.4 trillion. It is for this reason that future borrowings should be tied to self-liquidating projects,” Uwaleke said.
On states’ debt profile analysis, the NBS report said Lagos recorded the highest domestic debt in Q2 2022 with N797.30 billion, followed by Delta (N378.87 billion) and Ogun (N241.78 billion).
The lowest debt was recorded in Jigawa with N45.13 billion, followed by Ebonyi and Kebbi with N59.11 billion and N60.41 billion respectively.
Lagos State recorded the highest external debt stock in Q2 2022 with $1.27 billion, followed by Kaduna ($586.77 million) and Edo ($268.31 million).
The lowest was recorded in Borno ($18.69 million), followed by Taraba and Yobe with $22.28 million and $23.09 million respectively.
