Nigeria's Ballooning Debt Profile

Thursday, November 05, 2020 / 11:58 AM / By CSL Research / Header Image Credit: Zenith Bank

A Business Day report says the Minister of Finance, Budget and National Planning, Zainab Ahmed, in her presentation to the  Senate Committee on Local and Foreign Debts noted that the country's total public debt will hit N38tn by December 2021. She noted that the total public debt stock (external and local borrowings)  of the federal and state governments and the Federal Capital Territory stood at N31.01tn (US$85.90bn) as of June 30, 2020 and is projected based on existing approval to rise to N32.51tn by December 31, 2020. With planned borrowing of N6.17trn in 2021, total public debt is expected to rise to N38.68tn by December 31, 2021. 

The N6.17trn planned borrowing mentioned by the Minister of Finance is higher than the expected budget deficit for 2021e. According to the president's 2021 budget presentation documents, the Federal government plans to spend N13.08tn in 2021 which would be financed by Revenue of N7.88tn. This implies a budget deficit of N5.20tn which would be financed mainly by borrowings of N4.28tn, privatisation proceeds of N205.15bn and finally project linked bilateral & multilateral loans of N709.69bn. 

Whilst debt to GDP ratio remains within the acceptable threshold, we are increasingly worried about the government's ballooning deficits and unsustainable debt service costs. While we acknowledge the need to pursue an expansionary fiscal policy under current economic conditions, it comes at the detriment of long term fiscal sustainability. In the recently released Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP), debt service to revenue ratio rose to 99% in the first quarter of 2020. 

With the economy on the path to a recession, government revenues particularly non-oil revenues would likely remain depressed in the next few quarters. In our view, the FG must implement fiscal consolidation measures to manage its expenditure. In addition, implementing policies aimed at improving the business environment will help mitigate the impact of the global pandemic on the profitability of private sector enterprises, thus providing support for non-oil revenue. 

Nigeria's Debt: 2015 to H1 2020 (N'trn)

Source: Proshare Research

Download Here  - Q2 2020 Nigerian Domestic and Foreign Debt Report

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