The International Monetary Fund has warned that except the federal government put in place adequate measures to improve revenue generation, it’s entire earnings may be spent servicing debt by 2026.
The Fund revealed that based on a macro-fiscal stress test that it conducted on Nigeria, interest payments on debts may wipe up the country’s entire earnings in the next four years.
The IMF’s Resident Representative for Nigeria, Mr. Ari Aisen stated these while presenting the latest Sub-Saharan Africa Regional Economic Outlook, in Abuja.
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The Federal Government is to spend N3.61trn servicing Nigeria’s debt burden in the 2022 fiscal period.
The N3.61trn to be used to service the nation’s debt represents about 34 per cent of the 2022 projected revenue of the Federal Government.
Nigeria is experiencing a worsening debt level as the country’s indebtedness is likely to reach N45tn following plans by the Debt Management Office plans to borrow an additional N6.39tn to finance the 2022 budget deficit.
The administration of President Muhammadu Buhari has been under series of attacks on the country’s rising debt levels.
Nigeria’s debt service to Gross Domestic Product ratio had hit 73 per cent based on figures released by the Finance Ministry in October last year.
But despite the fact that Nigeria’s debt to GDP ratio is one of the highest in Sub-Saharan Africa, senior government officials still maintained that the country’s debt profile is still within sustainable limit.
The Minister of Finance, Mrs Zainab Ahmed had said that government borrowings are done for capital project execution and that the government has the ability to meet it’s obligations to creditors.
But speaking in Abuja, Aisien expressed worry that many African countries, including Nigeria risk sliding into critical debt servicing problem unless urgent actions were explored to significantly raise revenue.
He revealed that over 80 per cent of the federal government’s revenue was committed to debt service.
Aisien said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue almost 100 per cent is projected by 2026 to be taken by debt service.
“So, the fiscal space or the amount of revenues that will be needed and this without considering any shock is that most of the revenues of the federal government are now in fact 89 per cent and it will continue if nothing is done to be taken by debt service.
“It is a reflection of the low revenue of the country. The country needs to mobilise more revenue to be able to have macroeconomic stability. It has become an existential issue for Nigeria.
“The war in Europe is hunger in Sub-Saharan Africa and Africa. So, I think we should pay very close attention to this issue.
He lamented that being an oil exporter, Nigeria was not only unable to take advantage of the current global high oil prices to build reserves, but also confronted by low earnings due to the subsidy on petroleum products.
He said Nigeria received a total of $6.8bn facilities from the IMF following the outbreak of the COVID-19 pandemic in 2020.