A recent report from the Debt Management Office reveals that Nigeria’s total public debt reached N87.38tn at the close of Q2 2023, representing a 75.29% increase or N37.53tn from the N49.85tn recorded in March 2023. This public debt stock includes the combined domestic and external debts of the Federal Government of Nigeria, the 36 states, and the Federal Capital Territory, as well as the N22.71tn Ways and Means Advances of the Central Bank of Nigeria to the Federal Government. The increase in debt stock is attributed to both new borrowings from local and external sources and the inclusion of the securitized FGN’s Ways and Means Advances.
Despite the concerning figures, the DMO remains hopeful that ongoing reforms and recommendations from the Fiscal Reform and Tax Policies Committee will improve debt strategy and sustainability. However, it is worth noting that the current debt stock of N87.38tn exceeds the DMO’s earlier projection of N77tn by N10.38tn, with a significant increase in both domestic and external debt over the past three months.
The DMO warns that the government’s projected debt service-to-revenue ratio of 73.5% for 2023 is worryingly high and poses a threat to debt sustainability. As such, the report underscores the importance of implementing recommended reforms and policies simultaneously to address the growing debt burden.
A report titled ‘Report of the Annual National Market Access Country Debt Sustainability Analysis (DSA)’ by the debt office highlights a concerning issue that the government’s revenue profile cannot support higher levels of borrowing. The projected FGN Debt Service-to-Revenue ratio for 2023 is 73.5%, which is alarmingly high and poses a significant threat to debt sustainability. To counter this, the government must increase its revenue from N10.49tn to about N15.5tn, which is worth considering. The DMO recommends implementing revenue mobilisation initiatives and reforms to increase the country’s tax revenue to GDP ratio.
The Federal Government is rapidly approaching its debt limit of 40%, which severely restricts its ability to borrow. To mitigate this, the DMO suggests reducing borrowing and budget deficit by encouraging the private sector to finance some capital projects through public-private partnership schemes. Additionally, the Federal Government can reduce borrowing by selling government assets through privatisation. Nigeria’s low revenue generation has led to increased borrowing, but the current administration is committed to breaking the cycle of overreliance on borrowing for public spending.
It is worth noting that only when the government can adequately increase revenue and reduce borrowing, it can achieve sustainable FGN Debt Service-to-Revenue ratio. The report recommends the government should follow these suggestions meticulously and consistently. Ultimately, these measures will help the government achieve debt sustainability and reduce the worryingly high FGN Debt Service-to-Revenue ratio.
