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With Nigeria’s total public debt estimated to hit N77trillion by May 2023, concerns have been raised about the nation’s rising debt and its sustainability in the midst of declining revenue. To check the mounting debt, the Federal Government has also narrowed its borrowing to the domestic capital market to finance the N8.8trillion debt component of the N10.78trn deficit in the 2023 budget. But this has its downside as the country is very close to exceeding the international borrowing threshold.
According to the Debt Management Office (DMO), Nigeria’s debt-to-GDP ratio as of September 2022 was 35.2 per cent. Currently, Nigeria’s debt in relation to the GDP is 38.56 per cent. The highest debt-to-income ratio a borrower can have and be qualified for a loan is 43 per cent. Ideally, lenders prefer a debt-to-income ratio lower than 36 per cent, with no more than 28 per cent of that debt going into debt servicing. However, it is cheering that the DMO has assured that the federal government will not exceed the legally approved new borrowing limit in the 2023 Appropriation Act. Only recently, two global rating agencies, Moody’s and Fitch, as well as the International Monetary Fund (IMF) have cautioned the federal government that resorting to Ways and Means (W&M) poses serious risks to Nigeria’s macroeconomic stability.
In January 2023, Moody’s downgraded Nigeria’s sovereign rating to Caa1 from B3, with the federal government expressing ‘surprise’ at the development, but noted that the government has started taking actions to resolve issues raised by Moody’s. On its part, Fitch advised the Central Bank of Nigeria (CBN) that financing government’s budgets through W&M advances has tripled government’s indebtedness since 2015, describing it as a ‘heavy burden’ on the nation’s debt stock. It says that such financial instrument has far-reaching implications on inflation, unemployment, and poverty.
Undoubtedly, rising national debt and low revenue generation have attendant higher risks profile and cost for international debt issuances. For instance, between January and February this year, data from the DMO showed that the federal government borrowed N2.13trilion through Bond issuance, retail savings and Treasury Bills. There are fears that at the current rate of borrowing, the government runs the risk of exceeding its projected domestic borrowing of N7.04 trillion for 2023 financial year. In January alone, the federal government raised N662.617billion through Bond auction, and N277.468billion via Treasury Bills, and N533million through debt issuances that it introduced in 2017. In February 2023, government raised another N770.56billion through Bond auction, N417billion on Treasury Bill and N1.271billion through Savings Bond. The unheeded warnings by experts appear to be haunting the economy. But the DMO points out that the domestic issuance programme is designed not only to provide funds to finance the budget deficit, but also to refinance government’s maturing obligations during the current fiscal year.
The DMO observes that while it is maximising the opportunity provided by ‘investors’ strong demand’ to raise funds to facilitate early implementation of the 2023 budget, it will be guided by the law and will not exceed the legally recommended borrowing limit set in the Appropriation Act. We urge the government to keep its promise on borrowing limit. It should not saddle the incoming administration with unsustainable debt.
The World Bank and the IMF had last year noted that the inability of the Nigerian government to check its borrowings would increase poverty in the country by at least 5 million annually and worsen the inflation rate. The current inflation rate is 21.9 per cent. The federal government debt burden comes amid further concerns that at least 28 state governors have piled up N5.8trillion debts for incoming governments in their states.
The DMO says that the states’ debts have risen above 200 per cent of their projected revenues for 2023. The debt figures based on the analysis of the DMO, consist of domestic borrowings from local creditors and external borrowings from international lenders such as the World Bank, IMF and African Development Bank (AfDB). Instead of resorting to unbridled borrowing, the federal government should explore all options available to it and work with experts to develop a sustainable plan to manage its finances and reduce its dependence on borrowing.
Let its focus be on implementing economic reforms and diversifying government’s revenue source. This is to avoid impoverishing future generations. Relying so much on borrowing will increase real interest rate and also decrease private investment in the economy.
