The external debt obligations of the federal and state governments in naira terms increased by an additional N548.07 billion between March 31 and August 1, 2022, due to the decline in the value of the country’s currency against the US dollar, BusinessDay findings have shown.
The increase in the naira equivalent of the external debt is on the back of naira’s downward movements in the Investors and Exporters window from N416.63/$ in March 2022 to N428.88/$ on August 1, 2022. The naira depreciation added an extra N58.44 billion to states’ external debt and N489.62 billion to that of the federal government.
The federal government’s external debt rose to $39.69 billion in March 2022 from $33.62 billion as of December 2021. Also, the external debt obligation of the 36 subnational governments and the Federal Capital Territory Abuja stood at $4.77 billion as of December 2021.
As at the end of the first quarter of 2022, Nigeria’s debt-to-GDP ratio stood at 23.3 percent.
“When some of us were warning that we are heading into a debt crisis, some official jokers in high places in this country told us, “No! Our debt to GDP ratio is still manageable”. Now that we have earned N1.6 trillion in Q1 of 2022 and spent N1.9 trillion to service debt, effectively borrowing over N300 billion to pay debt, the jury is in. We have fallen off the debt cliff,” Kingsley Moghalu, former presidential candidate, said.
He added that whoever leads Nigeria now must be able to pull a rabbit out of a hat as the chances of getting debt relief, as it happened during the regime of the former president Olusegun Obasanjo, are very slim these days. He also advised Nigerians not to compare Nigeria’s external debt to those of Japan and the United States as those are producing economies.
According to Zainab Ahmed, minister of finance, budget and national planning, Nigeria only generated just N1.6 trillion between January and April this year, while it spent N4.7 trillion, resulting in a budget deficit of N3.09 trillion.
The poor revenue generation may not be unconnected with Nigeria’s inability to increase crude oil production in line with the projection in the 2022 Appropriation Act. According to the Organization of Petroleum Exporting Countries, Nigeria produced 1.299 million barrels per day (bpd) and 1.133 million bpd on the average in the first and second quarters of 2022. This is against the 1.88 million bpd production benchmark for 2022.
The depreciation of the naira against the US dollar usually reflects in debt servicing because Nigeria will have to convert the naira to the US dollar during debt servicing and repayment, meaning that as the naira depreciates, more naira will be needed to meet the same debt repayment made a few months back.
For instance, Nigeria spent $2.19 million on debt servicing from January to December 2021. However, from January to March 2022, the country coughed out $694.01 million for debt servicing, meaning that in three months, what Nigeria paid for debt servicing was 329 times more than what it paid throughout 2021.
The naira has come under pressure since the beginning of 2022, due to illiquidity in the foreign exchange market, leaving many businesses and individuals dumbfounded as their efforts proved abortive while sourcing forex from the official market. The US dollar currently trades at the parallel market at a rate of N690/$.
The Nigerian government is facing serious challenges generating enough revenue to meet its essential obligations such as the execution of capital projects as well as for domestic and foreign debt serving.
The country has not benefitted much from the oil price rally due to crude oil theft and petrol subsidy payment. The nation’s external reserves remain stagnant at $39 billion while it was reported a few days back that the balance in the excess crude oil account had plunged to $376,655.
On the way out of the fiscal challenges, the government has been advised to adhere to the Fiscal Responsibility Act.
“The issue is that we need responsibility to adhere to the fiscal responsibility act. This will curb fiscal rascality and prodigality. The case of over bloating of government contracts should be looked into,” Evans Osabuoghien, a professor of economics at Covenant University, said.
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