Nigeria’s Debt To Hit Record N53trn As FG Plans Fresh N11trn Borrowing

If the proposal by the Minister of Finance, Mrs Zaianb Ahmed to the Federal Government to borrow the sum of N11.3trn to finance the 2023 budget, then the total loan portfolio under the administration of President Muhammadu Buhari would hit a record N53trn.

The Minister had told federal lawmakers that the Federal Government projects to borrow about N11.3trn and privatize some of its holdings in national enterprises to finance the budget deficit in 2023.

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She had told them the 2023 budget deficit is expected to exceed N12.42trn if it should keep petroleum subsidy for the entire 2023 fiscal year.

Ahmed presented two scenarios of the budget deficit to the committee, saying the first option involves retaining the petroleum subsidy for the entire 2023 fiscal year.

By this scenario, the deficit is projected to be N12.41trn in 2023, up from N7.35trn budgeted in 2022, representing 196 per cent of total revenue or 5.50 per cent of the estimated Gross Domestic Product (GDP). In this option, she said the government would spend N6.72trn on subsidy.

The second option involves keeping subsidy till June 2023 and that this scenario would take the deficit to N11.30 trillion, which is 5.01 per cent of the estimated GDP. In this option, Petrol Motor Spirit subsidy is projected to gulp N3.3trn.

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The two proposals have budget deficits far above the stipulated threshold in the Fiscal Responsibility Act. According to the existing Act, the deficit must not exceed three per cent of the GDP.

However, the law makes provision for the President to cross the threshold with the approval of the National Assembly.

Section 12 (1and2) of the Fiscal Responsibility Act reads, “The estimate of: aggregate expenditure and the aggregate amount appropriated by the National Assembly for each financial year shall not be more than the estimated aggregate revenue plus a deficit, not exceeding three per cent of the estimated Gross Domestic Product or any sustainable percentage as may be determined by the National Assembly for each financial year; aggregate expenditure for a financial year may exceed the ceiling imposed by the provisions of subsection (1) of this section if in the opinion of the President there is a clear and present threat to national security or sovereignty of the Federal Republic of Nigeria.”

The projected deficit under the second option, is expected to be financed through new borrowings from local and international sources.

This will include a total of N9.32trn in new borrowings, comprising N7.4trn from domestic sources and N1.8trn from foreign sources. The government is expected to generate N206.1bn from privatization proceeds and N1.7trn in multilateral project-tied loans.

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When the N11trn fresh borrowing is added to the current debt of N41.6trn, Nigeria’s total debt burden is expected to hit a record high of N52trn by the end of next year.

The federal government’s huge appetite for borrowing under the administration of President Muhammadu Buhari had worsened the debt position since he assumed office.

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.

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

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Data from the Debt Management Office 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

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