Nigeria’s debt per capita, which stood at N217,138 in 2022, is set to hit N365,258 by the end of 2023, KPMG estimates.
In its latest Macroeconomic Snapshot, KPMG noted that Nigeria’s debt service to actual revenue ratio which has remained largely above 50 percent since 2017, stood at 81 percent in 2022.
It said the 81 percent debt service to revenue ratio at the end of 2022 was much higher than the average of 22.5 percent for low-income nations.
“With Federal Government of Nigeria revenue to GDP ratio of 4.49 percent as of December 2022, Nigeria’s debt service to revenue ratio may surpass 100 percent in 2023,” KPMG Nigeria said.
It said if Nigeria’s debt service to revenue ratio surpasses 100 percent in 2023, it will limit the fiscal space and the Government’s ability to pay for its operations and functions unless urgent measures are taken to build revenue.
“This is however unlikely being a transition year with the outgoing administration winding done and a new one starting which would require time to set up and settle before new policies can be introduced and work,” KPMG said.
KPMG stated that the new administration might even be compelled to borrow even more to run its government and stimulate much-needed growth in physical and social capital.
“To borrow more might need to widen the various legal and self-imposed restraints and buffers relating to deficit financing,” it said.
KPMG said to avoid defaulting on loan terms which could harm the country’s credit rating and confidence in borrowing money, the government must establish well-thought-out guidelines and frameworks for borrowing.
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It added that the Government should also focus on sustainable debt management and giving investments that produce long-term economic returns top priority.
KPMG said despite the Ways & Means advances being designed to be short-term in nature and to fund delayed expected government cash receipts, it has been used over the last 8 years in Nigeria to plug unattainable revenue projections.
The Ways & Means rose from N0.6 trillion in 2015 to N22.7 trillion by the end of 2022.
The Ways and Means loans allow the government to borrow funds from the CBN for short-term emergency financing to support the budget.
The Senate recently approved the securitisation of N22.7 trillion in Ways and Means advances provided to the government by the Central Bank of Nigeria(CBN).
“With Senate approval, these loans from the CBN, once assented to by the president, can now be converted to a type of security such as bonds that can be traded in the capital market,” KPMG said.
It stated that the securitisation of the CBN ways and means, as approved by the Senate, provides for the issuing of debt instruments with a 3-year moratorium on the principal, a 40-year term, and an annual interest rate of 9 percent per annum.
“The immediate impact of this is that Nigeria’s debt which hit N46.3 trillion by the end of 2022 will immediately rise to about N70 trillion,” KPMG said.
“This is representing 35 percent of 2022 nominal GDP which is close to the government’s own self-imposed target of 40 percent.
“However, with the N8.8 trillion expected new borrowings from both domestic and external means in the 2023 States and Federal budgets, the total debt stock will likely stand at about N77.8 trillion by the end of 2023.”
KPMG said this is without considering the likelihood of new borrowings not already contained in the 2023 budgets by incoming administrations at the State and Federal level.
