Nigeria’s fiscal crisis worsens as CBN MPC member raises debt service-to-revenue ratio to 80% – The Whistler Newspaper
…says FG’s preference for Eurobonds will soon hurt Nigeria’s economy
The fiscal crisis facing Nigeria may have worsened in the first quarter of this year as the country’s debt service-to-revenue ratio reached 80 per debt.
This is an increase of 400 basis points from the 76% it was at the end of 2021.
A debt service to revenue ratio of 8% implies that for every 100 naira earned by Nigeria, 80 naira is spent on debt service.
Escalating fiscal sector deficits and the concomitant increase in debt ratios are among the weak links in the domestic economic environment.
Weak revenue growth in a period of expanding government spending continued to drive up fiscal deficit levels in the first quarter of 2022, similar to the trend seen in 2021.
Nigeria’s total outstanding debt in the first quarter of 2022 had risen to 41.60 trillion naira from 39.56 trillion naira in December 2021, representing an increase of 2.04 trillion naira over a period of three month.
Confirming the development, a member of the Monetary Policy Committee of the Central Bank of Nigeria, Asogwa Chikwendu, said in his personal statement made at the last MPC meeting that it was worrying that the debt structure was increasing across the board. accumulation of Eurobonds on the external market. debt component, while concessional loans are kept to a minimum.
He said: “At the end of 2021, the debt service to revenue ratio was 76.0%, but may have jumped to around 80.0% in the first quarter of 2022.
“What is of particular concern about the debt structure is the growing accumulation of Eurobonds in the external debt component, while minimizing concessional lending.
“The government’s unexplained preference for Eurobonds at high interest rates, with the associated exchange rate risk, could likely hurt Nigeria sooner than expected. Unfortunately, several other African countries are involved in this excessive rush. to Eurobonds.
“Already, Nigeria is mentioned by the IMF as one of the countries likely to find itself in debt distress, given the staggering stock of $100.07 billion in public debt as of March 31, 2022.
The International Monetary Fund warned last month that unless the federal government puts in place adequate measures to improve revenue generation, all of its revenues could be spent on debt service by 2026. .
The Fund has revealed that, based on a macro-fiscal stress test it conducted on Nigeria, debt interest payments could wipe out the country’s entire revenue over the next four years. .
The IMF Resident Representative for Nigeria, Mr. Ari Aisen, during his remarks at the presentation of the latest Regional Economic Outlook for Sub-Saharan Africa, in Abuja, expressed concern that many African countries, including Nigeria , slip into a critical debt-servicing problem unless urgent action is taken. explored to dramatically increase revenue.
Aisien had said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you see are interest payments as a share of revenue and as you see us in terms of the federal government’s reference. of Nigeria, nearly 100% revenue is expected to be taken by 2026 through debt servicing.
“So the fiscal space or the amount of revenue that will be needed and that without factoring in any shocks is that most federal government revenue is now actually 89% and that will continue if nothing is made to be taken by debt servicing.
“It is a reflection of the low incomes of the country. The country needs to mobilize more revenue to be able to have macroeconomic stability. It has become an existential problem for Nigeria.
“War in Europe means hunger in sub-Saharan Africa and in Africa. So I think we should be very careful about this issue.