Nigeria's Rising Debt Profile: Issues and Implications for Sustainable Economic Development

Proshare

Saturday November 13, 2021 / 05:25 PM / by Taiwo Oyedele/ Header Image Credit:  EcoGraphics

 

Debt in Context

  • Debt is the amount of money borrowed by one party from another in return for future repayments, with or without interest which may be positive or negative

 

  • It enables the borrower to do certain things now which could have otherwise been impossible or had to wait

 

  • Debt, in and of itself is not a bad thing. In fact, being debt free can be an indication of sub-optimality

 

  • All countries borrow, rich and poor

 

  • According to the Institute of International Finance, the global debt of governments, companies and households stood at an all-time high of $281 trillion as at the end of 2020 [about 355% of global GDP (govt 105%)]

 

  • America's debt ($19t) is almost 8 times Africa's GDP ($2.5t) and 40 times Africa's aggregate debt ($450b)

 

  • In principle, borrowing is spending tomorrow's money today so it must benefit tomorrow to be optimal

 

  • Ironically, those who have no need to borrow often attract favourable terms than those who are desperately in need of money

 

  • A debt default or haircut usually has a devastating effect

 

Nigeria's Rising Debt Profile

  • Over the past five years (2015 - 2020), debt accumulation has increased significantly in Nigeria.

 

  • Public debt expanded by an average of 21.02 per cent while economic growth figure averaged 0.15 per cent.

 

  • Revenue on the other hand expanded by an average of 5.19per cent.

 

  • Over the same period, public debt stock has expanded by 155.66 per cent (point-on-point estimate) while the economy expanded 3.42 per cent.

 

  • Revenue expanded by 14.76 per cent.

 

  • By implication, the rate of expansion in public debt in Nigeria is fast outweighing the revenue mobilisation capacity of the government.

 

  • Consequently, the debt to GDP ratio expanded from 20.32 per cent in 2015 to 34.98 per cent in 2020 (IMF)

 

  • This pace of increase in the public debt stock, particularly, raised the fiscal sustainability concerns on Nigeria.

 

Is Nigeria a Rich Country?

  • The country has little fiscal space which further deteriorated due to COVID-19 resulting in revenue decline while spending increased

 

  • Priority of spending and budget padding is a concern

 

  • Ways and Means is technically inflation tax, which is regressive affecting the poor more

 

  • There are concerns that government borrowing may crowd out the private sector especially given the tax exemptions

 

  • While the current realities may appear unavoidable, the level of borrowing is not inevitable

 

  • Debt is growing faster than GDP and debt service much faster than revenue

 

  • 6 of 10 top IDA by WB are in Africa led by Nigeria (Nigeria, Ethiopia, Kenya, Tanzania, Ghana, Uganda)

 

  • Nigeria's foreign debt composition is made up of IDA, Eurobond, IMF, China, AfDB and others

 

  • A country cannot be rich when its people are multi-dimensionally poor

 


 Proshare Nigeria Pvt. Ltd.

Does Nigeria has a Revenue or Debt Problem?

  • Nigeria is resource-dependent with major sources of revenue being threatened by price and production volatility

 

  • The country's tax base is small and faces structural problems

 

  • Hence a revenue problem is fast becoming a debt crisis

 

  • Nigeria's rising debt profile is a symptom of underlining problems (low revenue and high spending)

 

  • Nigeria is borrowing for debt service, capital expenditure and partly to fund recurrent expenses

 

  • If revenue cannot cover recurrent expenditure and debt service, and non-self financing projects, then a debt crisis is looming unless it is temporary

 

  • A more accurate or realistic measurement is debt-service-to-revenue and not Debt to GDP

 

  • There seems to be poor understanding of budgeting, budget deficit and public debts by government and Nigerians

 

  • Questions around zero-based budgeting, budget revision, accounting for variances, budget performance etc


 Proshare Nigeria Pvt. Ltd.


Issues and Implications

Proshare Nigeria Pvt. Ltd.


NESG Tax Morale Study

Proshare Nigeria Pvt. Ltd.

Conclusion and Final Thoughts

Proshare Nigeria Pvt. Ltd.

About the Author

Taiwo Oyedele is the Fiscal Policy Partner and Africa Tax Leader at PwC.

 Proshare Nigeria Pvt. Ltd.

Related News

  1. Finding a Way Out of Nigeria's High Debt Costs - Ayo Teriba
  2. Nigerian Bond Issue 4 times Oversubscribed but Pricing Expensive
  3. $4bn Eurobond: Implications for the Currency and Fiscal Position
  4. Nigeria Raises USD4bn through Eurobonds; 30-Year Eurobonds Raised at 8.25%
  5. Africa's External Debt Mountain and Looming Debt Crisis
  6. External Debt Service Still Manageable; Amounted to US$299m in Q2 2021
  7. A Healthy Message on External Debt
  8. A Review of Nigeria's Q2 2021 Public Debt Stock
  9. Debt Stock Rises to N35.5tn in June 2021
  10. FGN and Public Debt Stock Still Manageable
  11. DMO Publishes 2019 Debt Sustainability Analysis Report
  12. More and More Debts: A Concern for All
  13. DMO Reacts to Media Publication on the Listing of Nigeria, Nine Others as High-Debt Risk Nations

 Proshare Nigeria Pvt. Ltd.

 Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP