Nigeria spends 11.8 trillion naira, $8.2 billion on debt service in 7 years
As Nigeria’s debt stock continues to rise amid analyst concerns over the country’s debt sustainability, a total of 11.784 trillion naira and $8.168 billion has been spent over the past seven years to service domestic and external debt respectively, according to data from the Debt Management Office (DMO) compiled by LEADERSHIP showed.
The country’s outstanding domestic and external debt has increased by 127.9% and 272.9% respectively over the past seven years.
Compared to the country’s domestic debt obligation of N8.836 trillion in 2015, the outstanding debt had risen to N20.144 trillion by the end of March 2022.
The annual debt service payment for domestic bonds had doubled from N1.018 trillion in 2015 to N2.054 trillion by the end of 2021, while in the first three months of 2022 the federal government had paid N668.69 billion in interest on its local loans.
In the same vein, the country’s external borrowing had soared to $39.969 billion by March 2022, compared to a debt stock of $10.718 billion it owed to external creditors at the end of 2015.
Similarly, the amount paid annually for servicing foreign debt obligations has increased from $331.059 million in 2015 to $2.109 billion in 2021. In the first quarter of 2022, the country paid $548.789 million to its external creditors.
Analysts have continually warned that the country’s debt profile is rapidly becoming unsustainable.
Finance, Budget and National Planning Minister Zainab Ahmed recently mentioned that the country’s growing debt and its high spending plan are making it increasingly difficult to service its debt.
As the country plans to spend N4 trillion on fuel subsidies, Ahmed noted that paying the unplanned subsidy would mean increased borrowing for the country.
“We also asked that we have to borrow more, which is very serious. Already our borrowing is increasing significantly and we are struggling to service debt because even though income is increasing, spending is increasing at a much higher rate, so it is a very difficult situation,” she said. declared.
Meanwhile, the International Monetary Fund (IMF) had previously warned that the country could spend all of its revenue on servicing debt over the next four years if rising debt levels were not warned. The country’s debt profile is estimated to reach N45 trillion by the end of this year.
IMF Representative for Nigeria Ari Aisen has revealed that after conducting a macro-fiscal stress test, debt interest payments could be equivalent to Nigeria using 100% of its revenue for servicing of debt by 2026 if not closely monitored.
He said: ‘So the fiscal space or the amount of revenue that will be needed, and that without taking into account any shocks, is that most of the federal government’s revenue, in fact 89%, is now for the debt servicing, and it will continue if nothing is done. This 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.
The country’s growing debt profile and swelling service obligations also pose a threat to the country’s ability to raise more funds in the international market.
According to the World Bank, countries facing debt sustainability issues could face reduced access to external financing, forcing a sharp fiscal adjustment.
According to Ayokunle Olubunmi, head of financial institutions rating at Agusto&Co, debt service is a burden for Nigeria.
“It’s like kicking the box because if you look at the use of most borrowing, it’s for recurring expenses, which is not sustainable. Also, looking at the funds allocated to the projects, we see that the quality of the projects is not at the top. In the short term, it may seem like we can get by, but the government is creating a problem for the future. If you look at the debt service revenues versus the government in 2020, you realize that they are over 90%.
“This is only an interest payment, not a principal repayment; So when we spend 90% of our income to pay interest on loans, it may seem like we’re profiting, but in the next two to three years, we won’t be able to continue like this,” he said. .
The Managing Director of the Center for Promotion of Private Enterprise (CPPE), an economist and former Managing Director of the Lagos Chamber of Commerce and Industry (LCCI),
Dr Muda Yusuf said the government’s growing debt profile raised serious sustainability concerns, although the government tended to argue that the conditions were not a debt problem but a revenue challenge.
“The truth is that debt becomes a problem if the revenue base is not strong enough to service the debt on a sustainable basis. It invariably becomes a debt problem. What is needed is the political will to cut spending and undertake reforms that can reduce the size of government, reduce governance costs and ease the government’s fiscal burden It is important to ensure that debt is used strictly to finance investment projects that would strengthen the productive capacity of the economy,” he said.