Following a comprehensive debt sustainability analysis done by the Debt Management Office (DMO) in collaboration with key government ministries and agencies, it was discovered that for the first time since Nigeria exited the London/Paris club of creditors in 2005 and 2006, the nation’s debt profile has deteriorated. From the analysis, the DMO said it observed that though Nigeria’s debt stock remains within internationally accepted threshold in comparison with aggregate output or Gross Domestic Product (GDP), the country has become vulnerable.
The debt office further explained that the deterioration had slipped from what it described as “low risk of debt stress” to “a medium-risk of debt distress”. This precarious position points to a possible debt trap in the near future if urgent and adequate measures are not taken to shore up Nigeria’s revenue collection.
Besides the DMO, other ministries and agencies involved in the analysis are: the Finance Ministry, Budget and National Planning Ministry, National Bureau of Statistics (NBS), Office of the Accountant-General of the Federation (OAGF) and the Securities and Exchange Commission (SEC).
Undoubtedly, the DMO analysis reveals critical issues that must not be ignored. Indeed, the concerns expressed by the agency are legitimate and timely. They should be taken seriously. Nigeria’s total debt stock (Federal and States) stands at N19.16 trillion, rising by N7.1trn in two years. The figure for 2017 is N4.76trn or 37.74 percent above that of 2016.
Though the figures recently released by the Federal Inland Revenue Service (FIRS) showed that the nation raked in N1.782trn tax revenue between January and June this year, other revenue earnings within the same half-year period were below projected target. There are shortfalls in revenue from oil sources, largely due to price fluctuations in the international market, even though oil prices began notching up to $50 per barrel in the last one week or so. According to the Chairman of FIRS, Mr. Babatunde Fowler, the tax collected indicates an increase of N224.14bn when compared to the N1.558trn collected in the same period in 2016.
However, Nigeria’s tax to GDP ratio, at six percent, is one of the lowest in the world. While aggressive revenue drive is one of the means to stave off slipping into another debt overhang, figures from Fitch, a global rating agency and the International Monetary Fund (IMF) show that government must either do something urgently to broaden its revenue base or become vulnerable to debt burden. For instance, Fitch ratings show that Federal Government’s current debt is 320 percent of its annual revenue, one of the highest figures in the world. This is far above the median of 196 percent for countries in Africa and the Middle East rated by Fitch.
According to experts, the striking disparity stems from the fact that the Federal Government’s revenues are as low as 5.3 percent of the GDP, well below an average of 44.5 percent in the developed economies or even the 25.8 percent seen across most African countries and the Middle East. Bangladesh has the next lowest ratio of the 115 countries rated by Fitch at 10.4 percent. This, in turn, is related to the huge size of Nigeria’s largely unregulated and untaxed informal economy. Also in its recent report, the IMF estimated that between 2010 and 2014, Nigeria’s informal economy accounted for 65.1 percent of the country’s GDP, by far the highest level in sub-Saharan Africa.
We have warned the government about the country’s spiraling debt profile. It is good that the DMO has reaffirmed our concern. This is not surprising because of frequent borrowing by the federal and state governments which has become a source of great worry. As DMO and other international financial institutions have cautioned, Nigeria may be heading for a debt trap if she is not careful.
Even by its own admission, the federal government in the Economic Recovery and Growth Plan (ERGP) stated that public debt has increased in recent years due to increased borrowing to finance budget deficits as a result of declining revenue. Government is currently seeking an external loan of $29.86bn from multilateral financial institutions, the World Bank, African Development Bank (AfDB), Japan’s International Cooperation Agency and the China Exim-Bank.
In spite of current efforts to deepen tax revenue base, the general outlook on revenue collection, especially from oil receipts, is somewhat bleak. As the DMO rightly observed, Nigeria’s debt burden indicators may deteriorate without appreciable increase in revenue profile.
This situation requires all hands on deck. Revenue leakages remain a major source of worry and must be plugged. Diversification efforts should be pursued with utmost commitment and sincerity of purpose. Government should also provide incentives and opportunities for investors who are willing to come into the country and establish companies that can yield sustained revenue and employment.
