Debt service swallows N6.16tn in 16 months

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Debt servicing has gobbled up N6.16 billion in 16 months, according to the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper.

In 2021, the federal government spent 4.22 billion naira on debt service, then 1.94 billion naira between January and April 2022.

A breakdown shows that servicing domestic debt cost 2.05 billion naira, while servicing external debt gobbled up 946.29 billion naira in 2021. There was also a sinking fund of 600 million of naira and interest of 1.22 billion naira on ways and means, which is defined as the government’s borrowing from the Central Bank. from Nigeria.

In the first four months of 2022, the cost of servicing domestic debt was N1.2 billion, while the expenditure on servicing external debt was N334.24 billion. There was also a N405.93 billion interest in Ways and Means.

The Federal Government has further projected debt servicing to cost N10.43 billion by 2025, according to MTEF/FSP 2023-2025.

This is an increase of 182.66% from the N3.69 billion budgeted for debt servicing in 2022.

Multilateral agencies and economists have consistently warned the federal government that rising debt service costs could trigger a crisis for the country.

However, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, and the Director General of the Debt Management Office, Patience Oniha, have insisted that the country does not have a debt problem. indebtedness but an income challenge.

In a DG DMO document recently obtained by our correspondent, the DMO said high levels of debt would often lead to high debt servicing and affect infrastructure investment.

According to the DG DMO, “high debt levels lead to heavy debt servicing which reduces the resources available to invest in infrastructure and key sectors of the economy”.

In the document, she stressed the need for debt sustainability, which she defined as the ability to meet all current and future obligations, while maintaining the ability to finance policy objectives without resorting to undue adjustments. large or exceptional financing such as the accumulation of arrears and debt restructuring. , which could otherwise jeopardize the stability of the economy.

Speaking at the launch of the World Bank’s Nigeria Development Update titled ‘The Urgency of Unusual Business’ held recently in Abuja, the Finance Minister admitted that Nigeria had to struggling to service its debt.

She said: “We are already struggling to service the debt because even though income is increasing, spending is increasing at a much higher rate, so it is a very difficult situation.”

The International Monetary Fund previously warned that debt servicing could eat up 100% of federal government revenue by 2026 if the government fails to implement adequate measures to improve revenue generation.

According to IMF Resident Representative for Nigeria, Ari Aisen, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts could wipe out the country’s entire revenue in over the next four years.

Aisen said, “The most critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you are seeing are interest payments as a share of revenue. As you see us in terms of the benchmark of the Federal Government 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, in fact, 89% and that will continue if nothing is done to be taken by debt service.

Less than two months after Aisen’s warning, the finance minister revealed that Nigeria was using 118% of its revenue to pay off its debts.

The PUNCH also reported that Nigeria’s debt servicing bill increased by 109% from N429 billion in December 2021 to N896 billion in March 2022.

A report by the Nigerian Economic Summit Group and the Open Society Initiative for West Africa found that Nigeria and 10 other countries in the Economic Community of West African States are currently in debt distress on the basis of a debt sustainability analysis.

The other 10 countries are: Benin, Burkina Faso, Cabo Verde, Gambia, Ghana, Guinea Bissau, Liberia, Niger, Senegal and Togo.

The World Bank recently said that Nigeria’s debt, which could be considered sustainable for now, was vulnerable and costly.

According to the Washington-based global financial institution, the country’s debt was also at risk of becoming unsustainable in the event of macro-fiscal shocks.

The World Bank recently said that Nigerian states are likely to lose N18.8 billion in oil and gas revenue in 2022 as a deterioration in revenue collection at the federation level will increase fiscal pressures for the states.

According to the global lender, the federation’s decline in income had placed many states in a precarious budgetary situation.

The financial institution also warned that there would be a 2.7% drop in FAAC transfers in 2022 compared to 2021, noting that this drop would push states to borrow more and reduce discretionary spending.

The Director General of the Center for Promoting Private Enterprise, Dr. Muda Yusuf, said the Nigerian economy was characterized by various economic vulnerabilities including rising public debt and debt servicing burden.

He said: “The debt service to revenue ratio for the first four months of the current year is over 100%. This implies that the government’s actual revenue over the period is not sufficient to service the debt. Therefore, funding for government operations – personnel costs, overheads, capital expenditures and even part of the debt service – will have to come from additional borrowing. This portends serious vulnerabilities for the Nigerian economy.

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