The Debt Management Office (DMO) has said that the Federal Government will need to have a revenue inflow of N15.5 trillion in order to achieve sustainable debt servicing.
The DMO stated this in its 2022 annual national Market Access Country (MAC) Debt Sustainability Analysis (DSA) where it projected a total public Debt-to-GDP ratio at 37.1 percent, indicating a borrowing space of 2.9 percent, equivalent to N14.66 trillion, a debt Service-to-Revenue ratio of 73.5 percent for 2023.
The DMO noted that the country’s debt stock remains sustainable under these criteria, adding that the borrowing space has been reduced when compared to Nigeria’s self-imposed debt limit of 40 percent set in the MTDS, 2020-2023.
“The projected FGN Debt Service-to-Revenue ratio at 73.5 percent for 2023 is high and a threat to debt sustainability. It means that the revenue profile cannot support higher levels of borrowing. Attaining a sustainable FGN Debt Service-to-Revenue ratio would require an increase of FGN revenue from N10.49 trillion projected in the 2023 budget to about N15.5 trillion,” it stated.
The report stated that the rise in debt burden will be driven by new borrowings which include N8.80 trillion for the year 2023, the FGN Ways and Means at the CBN of over N23 trillion and an estimated Promissory Notes issuance of N2.87 trillion in the debt stock.
Data from the DMO revealed that as of December 2022, Nigeria’s total public debt stock, consisting of domestic and external debt stocks of the Federal Government, 36 state governments and the Federal Capital Territory was N46.25 trillion ($103.11 billion) which was a 14.46 percent increase from the N39.56 trillion ($95.77 billion) recorded in the previous year.
The current debt burden already covers 23.20 percent of the borrowing limit which is a slight increase from 22.47 percent as of December 2021.
Hence it strongly advised on the need to strictly adhere to the provision of extant legislations on government borrowing, especially the Fiscal Responsibility Act 2007 and Central Bank of Nigeria Act, 2007 as it relates to Ways and Means advances, in order to moderate the growth rate of public debt.
The 2023 budget had a deficit of N11.34 trillion which Zainab Ahmed, former minister of finance, said would be financed mainly by borrowings from domestic sources (N7.04 trillion), foreign sources (N1.76 trillion), multi-lateral/bi-lateral loan drawdowns (N1.77 billion) and privatisation proceeds (N206.18 billion).
This is despite the fact that Patience Oniha, the director-general of DMO, said Nigeria stands the risk of having its debt profile blown up to N77 trillion if the N22.7 trillion Ways and Means restructuring request was approved by the National Assembly.
Hence the report stated that there was an urgent need for the government to pay more attention to revenue generation by implementing far-reaching revenue mobilisation initiatives and reforms.
These reforms include the strategic revenue growth initiatives and all its pillars with a view to raising the country’s tax revenue to GDP ratio from about seven percent which is one of the lowest in the world to that of its peer.
“The government should encourage the private sector to fund infrastructure projects through the public-private partnership schemes and take out capital projects being funded by borrowing to reduce the budget deficit and borrowing; government can reduce borrowing through privatisation and/or sale of government assets,” it advised.
The World Bank in its Macro Poverty Outlook for Nigeria: April 2023 report, said that the country spent 96.3 percent of its revenue on debt servicing in 2022 up from 83.2 percent in 2021 which highlights the worsening state of the country’s fiscal deficit with implications for its public debt stock.