More and More Debt...Where Do We Draw the Line?


Wednesday, May 19, 2021 / 03:18 PM / by United Capital Research / Header Image Credit: Zenith Bank

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Yesterday, President Muhammadu Buhari submitted a request for the approval of additional N2.3tn ($6.2bn) worth of external debt to the senate. According to the request, the loan is aimed at part-financing the N5.6tn budget deficit for 2021 with critical focus on funding capital expenditure. Noteworthy to mention, the loan request had been provided for as part of the 2021 appropriation act, thus the current presentation is merely to fulfill legal provisions. Interestingly, the FG recently got approval for $1.5bn and 995.0m Euros worth of multilateral loans few weeks ago.

Last year, the Federal government relied heavily on a slew of borrowings largely from multilateral organisations such as the IMF, World Bank and AfDB. The huge reliance on the debt market was necessitated by shocks to revenue generation. Similarly, the FG appears to be leaning heavily towards the external debt market in 2021, to spend its way out of the economic slowdown. However, the concern remains Nigeria's rising debt sustainability risk.

At the end of 2020, Nigeria's total debt stock (national & sub-national) stood at N32.9tn (or $86.8bn). The government has historically justified its rising debt profile by the compliant debt-to-GDP ratio of less than 30.0%. However, we reiterate our position that the FG's debt service cost as a percentage of revenue is a fairer reflection of the country's debt sustainability position. This is because a huge proportion of nominal GDP does not contribute to government's ability to repay its obligations.

Recently, the pandemic driven revenue shock has exacerbated the already precarious debt service cost to revenue ratio (averaging c.80% in 2020 vs. historic average of c.55%). Thus, while we recognize deficit spending as a critical fiscal policy tool to drive economic recovery, we think the FG can no longer ignore the associated debt sustainability risk.

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Related News on Debts

  1. Modest Burden of External Debt Service in Q4 2020
  2. A Rise in Domestic Debt Service in Q4 2020
  3. 38.60% of Nigeria's Total Public Debt Was External in Q4 2020 - NBS
  4. Q4 2020 External Debt Data: World Bank Heads the FGN's External Creditor List
  5. A Modest Increase in FGN Domestic Debt in Q4 2020
  6. Nigeria's Total Public Debt Stood at N32.92trn as of December 31, 2020 - DMO
  7. FGN's Domestic Debt Service on a Plateau, Totalled N604bn in Q3 2020
  8. A Small Rise in the FGN's Domestic Debt in Q3 2020
  9. Nigeria's Public Debt Stock as of September 30, 2020 Stood at N32.22trn
  10. External Debt Service Under Control 
  11. New Issuance, New Debt Service 
  12. External Debt Almost Two-thirds Concessionary 
  13. Nigeria's Total Public Debt Stood At N31.01trn in Q2 2020 - NBS 
  14. Nigeria's Public Debt Stock Stood At N31.01trn As of June 2020 
  15. External Debt Stock Flat in Q1 2020 
  16. Q1 2020: Debt Service Settled on a Plateau 
  17. Nigeria's Total Public Debt Stood At N28.63trn in Q1 2020 - NBS 
  18. Nigeria's Total Public Debt Stood At N27.40trn in Q4 2019 - NBS 
  19. Nigeria's Rising Debt Burden and How to Boost Revenue 
  20. Nigeria's Total Public Debt Stood At N26.14trn in Q3 2019 - NBS 
  21. Nigeria's Total Public Debt Stood At N25.70trn in Q2 2019 - NBS 
  22. Nigeria's Total Public Debt Stood At N24.97trn in Q1 2019 - NBS 
  23. DMO Releases Q1 2019 Public Debt Data - Marginal Increase of 2.3% in Total Public Debt Recorded 
  24. DMO Releases Public Debt Data for December 2018 
  25. Nigeria's Total Public Debt Stock Stood At $73.21bn or N22.43trn in Q3 2018 
  26. DMO Releases Public Debt Data for June 2018; FGN Domestic Debt Declines 
  27. Public Debt Vulnerable to Exchange Rate Movements 
  28. DMO Publishes Q1 2018 Debt Data; Total Public Debt Stood At N22.71trn or US$74.28bn 
  29. Total Public Debt as at December 31, 2017 Represents 18.20% of Nigeria's GDP for 2017 - DMO 
  30. Nigerian Public Debt - A Comparative Analysis 

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