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


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


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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

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Issues and Implications

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NESG Tax Morale Study

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Conclusion and Final Thoughts

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About the Author

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

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