Explainer: Nigeria’s debt status in 10 points
Patience Oniha, the Director General of the Debt Management Office (DMO), last Thursday made a detailed presentation of Nigeria’s total public debt status as of December 31, 2021.
Here is a breakdown of the numbers and major takeaways:
Total public debt: N39.556 trillion
Total Public Debt as at December 31, 2021 was NGN39.556 trillion as against NGN32.915 trillion, same period in 2020. This includes the total External and Domestic Debts of the Federal Government of Nigeria (FGN), thirty-six (36) State Governments and the Federal Capital territory (FCT).
Debt to GDP Ratio 22.47%
Debt to GDP Ratio stood at 22.47% compared to 21.61% in 2020. At this level, the ratio is within Nigeria’s self-imposed limit of 40%, the World Bank/IMF’s recommended limit of 55% for countries within Nigeria’s peer group and 70% for ECOWAS countries.
Legality of new borrowings
Rising Public Debt level stems from new borrowings to fund recurring budget deficits in the Appropriation Acts over the years. These new borrowings are approved by the Federal Executive Council (FEC) and the National Assembly (NASS) as required by the Fiscal Responsibility Act, 2007 and the Debt Management Act, 2003.
Revenue to GDP ratio 9.0%
Nigeria has a double challenge of a low Revenue Base and a huge infrastructure gap. While the government has remained committed to infrastructure development with significant improvements recorded over the years, the country’s revenue to GDP Ratio has remained low at 9.0% compared to comparable countries like Ghana at 12.5%; Kenya at16.6%; Angola at 20.9%; and South Africa at 25.2%.
The Ratio is even higher for advanced countries such as the US which has a Ratio of 30.6%. Nigeria’s low revenue base therefore makes the Debt Service to Revenue Ratio unacceptably high.
Budget deficit N6.449 trillion
Budget deficits have arisen from shortfalls in Revenues required to meet the Government’s expenditure. For many years, Nigeria has depended on revenues from crude oil – a commodity whose price is totally out of the country’s control and prone to volatility.
The volatility and challenges with production have oftentimes been responsible for Deficits in the Budget. Budget Deficits in recent years show that the numbers in 2015 and 2022 went up from NGN1.616 trillion to NGN6.449 trillion, while New Borrowings to finance the Deficits ranged between NGN1.457 trillion and NGN5.489 trillion.
Projected incremental borrowing 1 trillion
In view of the draft Amendment of the 2022 Budget submitted to the National Assembly on account of the suspension of the removal of PMS subsidies, the incremental borrowing is projected at about NGN1 trillion. This would take the total New Borrowing for 2022 to NGN6.154 trillion from NGN5.139 trillion in the subsisting Appropriation Act. The amendment process is still on-going.
Debt management tools: DSA, MTDS
In managing the risks associated with the Public Debt, the DMO uses World Bank/IMF debt management tools such as the Debt Sustainability Analysis (DSA) and the Medium Term Debt Management Strategy (MTDS).
Also, maturities in the Public Debt Portfolio are well spread out to avoid bunching of maturities and to ease repayments of maturing obligations. Similarly, the Government’s sources of funding are well diversified externally and domestically. Furthermore, in the Domestic Market, the DMO offers a wide range of products such as the FGN Savings Bond, Sovereign Sukuk, Green Bonds and FGN Bonds to grow the investor base, and meet the needs of diverse investors.
Sukuk project-tied financing NGN250 billion
The DMO has also put in place safeguards or measures to ensure that borrowings are deployed to capital projects, including the introduction of two project-tied products: Sukuk and the Green Bond. Funds raised through these sources can only be used for pre-identified and eligible capital projects.
As a demonstration of the DMO’s support to project-tied financing, the volume of Sukuk has increased over the years from the debut issuance in September 2017 of NGN100 billion to another NGN100 billion in 2018; NGN162.557 billion in 2020; and NGN250 billion in 2021.
The proceeds of the NGN362.557 billion Sukuk issued between September 2017 and June 2020 have been fully deployed by the Federal Ministry of Works and Housing to the construction and rehabilitation of economic road projects across Nigeria’s six (6) geopolitical zones.
The NGN250 billion Sukuk raised in December 2021 is also for road projects in all the six (6) geopolitical zones, but this time, it includes the Federal Capital Territory (FCT) and the Ministry of the Niger Delta Affairs.
Also, a total of NGN25.69 billion has been raised through Green Bonds since December 2017 when NGN10.69 billion was raised and then NGN15 billion in 2019. These funds have been deployed to eligible projects in agriculture, water, renewable energy and afforestation.
Debt to GDP 22.47% relatively low, poor revenue generation makes it bad
The DMO has been actively canvassing that the Government should focus on Revenue growth and use of Public Private Partnership (PPP) arrangements to finance capital projects, for Public Debt to be sustainable.
Statistics for 2020 from the World Bank show that the size of Nigeria’s Debt relative to GDP at 22.47% is low when compared to advanced countries like the United States of America, Canada and the United Kingdom with Debt to GDP Ratios of 133.92%, 117.46% and 104.47% respectively.
However, because these countries generate Revenues even with high debt levels, their debt is sustainable. It comes as no surprise therefore, that with Revenue to GDP Ratios of 30.6%, 41.9% and 36.6%, Interest Payments on Debt as a percentage Revenue were only 7.1%, 0.6% and 3.0% respectively.
China’s loans to Nigeria as of December 2021: $3.6 billion
There is no official communication from China stating that it is not willing to lend to the Nigerian Government. However, even if China discontinues lending to Nigeria, Nigeria’s sources of funding are well diversified. The contribution of China’s loans of about US$3.6 billion as at December 2021, to Nigeria’s External Debt Stock was only about 10%.
Nigeria has other External funding sources like the World Bank Group, African Development Bank (AfDB) Group, African Export-Import Bank and the Islamic Development Bank. These are in addition to bilateral lenders such as Germany and France. The DMO also raises external funds from the issuance of Eurobonds.
