Nigeria Faces Debt Crisis As Interest On Loans From IMF, World Bank, AfDB, Others To Gulp Over N7.2trn By 2030

…Commercial Creditors To Be Paid Interest Of $6.95bn. Multilateral Creditors $3.24bn

…Nigeria’s Debt No Longer Sustainable, Experts Warn

Barring any change in plans, the federal government is to spend a cumulative amount of $10.19bn servicing the nation’s external debt obligation within a ten-year period covering 2021 and 2030, figures obtained from the Debt Management Office has revealed.

The amount when converted with the parallel market exchange rate between the naira and the dollar amounts to about N7.2trn.

The federal government’s huge appetite for borrowing under the administration of President Muhammadu Buhari had worsened the debt position in the first quarter of this year as the country’s debt stock rose by N2.04trn to hit N41.6tn in the first three months of this year.

The N41.6trn represents a quantum leap from the N39.56tn debt figure recorded by the country as of December 2021.

The Debt Management Office and the Minister of Finance had come under series of attacks from experts and key stakeholders in the economy 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.

But investigation by THE WHISTLER revealed that between 2021 and 2030, a huge chunk of the nation’s revenue would be devoted for debt servicing obligation.

The data showed that out of the $10.19bn proposed to be used for debt servicing, about $6.95bn representing 68.2 per cent would be spent to service the commercial portion of the external debt burden while the balance of $3.24bn or 31.79 per cent is being projected for payment of interest for multilateral debt obligation.

Further analysis of the DMO figures showed that from the $6.95bn projected for commercial debt service obligation, about $6.9bn representing 99.5 per cent is to be spent servicing Nigeria’s Eurobond creditors while the balance of $25.28m is for servicing of Diaspora bonds.

Nigeria returned to the Eurobond market in 2021 and has issued bonds worth $15.9bn accounting for 39.8 per cent of external debt stock, according to the DMO.

The unexplained government preference of Eurobonds at high interest costs, with the associated exchange rate risk may hurt Nigeria sooner than anticipated.

For multilateral creditors, the DMO is planning to service the debt of African Development Fund (ADF) with $114.93m. African Development Bank (AfDB) $148.06m, Africa Growing Together Fund (AGTF), $9.48m, International Fund for Agricultural Development (IFAD) $40.93m, International Development Association (IDA) $1.59bn and International Monetary Fund $$123.36m.

Also, a projection of $2.78m is being proposed to be spent as interest on the loan secured from European Development Fund (EDF), $0.61m for the debt of Arab Bank for Economic Development (BADEA) while $8.31m and $123.71m is to be spent on loans secured from the Islamic Development Bank (IDB) and the International Bank for Reconstruction and Development (IBRD).

Further analysis of the data from DMO put the planned interest payment for Nigeria’s bilateral debt at $1.07bn.

Economic Outlook Bleak, Nigeria Heading For Debt Crisis—Experts

The huge preference for borrowing has made the IMF to name Nigeria as one of the countries that may likely move into debt distress, given the staggering N41trn of public debt stock as at March 31, 2022.

The Fund 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.

It 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 while presenting the latest Sub-Saharan Africa Regional Economic Outlook, in Abuja warned that Nigeria risk sliding into critical debt servicing problem unless urgent actions were explored to significantly raise revenue.

He stated 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.

Speaking in an interview with THE WHISTLER, the Chairman, Chartered Instittute of Bankers of Nigeria Abuja Chapter Prof Uche Uwaleke, sai the huge amount spent on debt servicing could pose great danger for the economy.

He said, “We are spending so much from our revenue to service debt and when that happens what is the implication? You have very little for what you want to do. If you have N1 expenditure, what it means is that you have 20 kobo for it. So, it counts out development of capital projects because that leaves you with very little and debt servicing you must do.

“That is why every year, government has not defaulted. Government will always service debt, so it leaves us with very little and that is why you see us more like in a perpetual state of borrowing.

“You will need to borrow to survive because as you earn, you are using it to service debt and so you will end up even refinancing. Refinancing means you borrow to service your debt. So that is our situation and I will say, the debt service to revenue ratio is really a problem and that is why sometimes you hear the Ministry of Finance say that we have a revenue challenge.”

He suggested that since the government is not earning enough revenue, time has come for it to adopt a cost reduction strategy to bring down the cost of governance.

He added, “We are not earning enough, because if we are earning enough, the amount we are spending on debt service would not be an issue but because the revenue is not as big as it should, the little we are earning we spend on debt servicing. So, it is a challenge.

“If you add the debt that the government is owing Central Bank over N10trn that tells you too that we have a higher figure. So, the debt stock is quite high, there is no doubt about that.

“My worry about the debt stock really is if you look at the composition, now going to what we should do, I think we should focus more on concessional loans. Loans form multilateral sources, World Bank, the International Monetary Fund, African Development Bank and maybe bilateral sources. When we are going for loans, we should focus on concessional rather than commercial debts.”

The Registrar Chartered Institute of Finance and Control of Nigeria, Mr. Godwin Eohoi, said that with the Federal Government spending about 70 per cent of its budget size servicing the country’s debt, any further plan to increase the country’s debt profile may result into debt crisis.

He called on the government to discontinue borrowing in order to avoid the current situation where a huge chunk of the country’s annual budget is spent on debt servicing.

“Currently, what we are still doing is debt servicing using a huge proportion of the annual budget to pay debt. That is serious because the money that you would have used for other things is now being used to pay debt.

“The debt is still mounting and the servicing that we are doing is quite huge. We are using over 70 per cent of our budget to service debt. We should not even accumulate further debt beyond what we currently owe.”

But the Chief Executive Officer of the Centre for the Promotion of Public Enterprises, Muda Yusuf, said that Nigeria may be at the brink of bankruptcy due to low revenue generation.

He said the huge burden of paying subsidy on petrol and fiscal leakages are among the factors exposing the country.

He said, “Debt service to revenue ratio for the first four months of the current year is over 100 percent. The implication of this is that the actual revenue of government over the period is not sufficient to service debt.

“Therefore, financing of the operations of government – personnel cost, overhead cost, capital expenditure and even part of the servicing of the debt will have to come from additional borrowing. These portends severe vulnerabilities for the Nigerian economy.”

Yusuf added that the fiscal outlook is clouded by elevated downside risks in the near term, driven largely by the huge burden of financing petrol subsidy, fiscal leakages, and unsustainable public debt trajectory.

“The outlook poses significant risks to macroeconomic stability amid heightened inflationary pressures, depreciating currency and increasing exchange rate volatility,” he added.

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