With total debt less than a quarter of Nigeria’s economy size, Africa’s biggest oil producer can embark on further borrowing but it is a question of the country’s capacity to widen revenue base to meet obligations.
The debt numbers of Nigeria leaves nothing to cheer for an economy grappling with revenue shortfall since the crash in global oil prices four years ago.
Nigeria’s interest payment to revenue soared to 60 percent last year from 27 percent in 2014, according to figures by the International Monetary Fund (IMF), and has averaged 57 percent in the last 13 quarters.
The Washington-based fund expects the ratio to hit 82 percent in the next three years, saying the country’s debt is unsustainable and might worsen if care is not taken.
“The high debt service to revenue ratio tells us if we keep borrowing especially externally then we are doomed” said Yinka Ademuwagun, research analyst at Lagos-based investment firm, United Capital Plc said in emailed response.
According to Ademuwagun, this means the economy would be short of required funds to expend on necessary capital expenditure to drive growth.
Putting this in context, the amount spent on servicing is over half of the little receipt retained by federal government after disbursing funds to the 36 states as mandated by the country’s federal system, and it’s the pot from which debt repayment and other public spending must the made.
But funds disbursed to the three tiers of government from federal allocation dipped to a five-quarter low of N1.93 trillion in three months to March 2019, while cash used to settle domestic indebtedness spiked to N610 billion in first quarter this year compared to N223 billion in preceding quarter.
The rising cost of servicing government debt in Nigeria has dampened foreign investors’ appetite to inject capital into the country according to a Financial Times Report, saying a number of them continued to be willing lenders despite being aware that their cash might not have been utilized efficiently.
“The effectiveness of those huge cash raises a lot of concern” Olayinka Olohunlana, a Lagos-based economic analyst said in a telephone interview. “Little or almost nothing can show as output of previous loans”
Olohunlana stated that instead for government to direct those cash to develop infrastructure or set up new industries to create jobs, or even bolster efforts to diversify the economy from heavy reliance on oil, Abuja is using loan to cover shortfall in budget.
Nigeria’s total debt stock rocketed 107 percent to N24.95 trillion in first quarter of 2019 from N12.4 trillion five years earlier, and has jumped 27 percent since the exit from recession in second quarter of 2017, without corresponding impact on economic expansion.
Analysts say economic growth which has averaged a paltry one percent over the last three years, has not felt the impact of increasing borrowing because the country lacks fiscal discipline that can tie borrowings to capital expenditure.
“Ideally a large chunk of borrowings should finance capital projects, but because of the huge revenue gap and corrupt practices of political leaders, that’s not the case” Ademuwagun noted, positing that commercial loans are still used to fund recurrent expenditure and service debt.
Nigeria has mostly used the Eurobond market to source external funds. The country sold a total $10.2 billion of bonds in the last two years, and raised N100 billion in an auction late-April that included a debut 30-year naira-denominated bond that was oversubscribed more than four times.
About $357, 000 was used to service foreign debt in Africa’s biggest economy in the first three months of 2019, a 207 percent spike over $172, 000 in the preceding quarter.
Israel Odubola
