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Wednesday, March 29, 2023

Nigeria’s Debt to GDP Ratio to Hit 30.50 percent by 2025

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Nigeria’s debt to GDP ratio is expected to hit 30.50 percent at the end of 2025 from a current level of 19.10 percent if the present fiscal trends persist, according to investment house, Afrinvest Securities.

Investopedia defines debt-to-GDP ratio as an important metric used by economists to compare a country’s gross national debt to its gross domestic product. It measures how much a country owes, in comparison to everything the country produces.

The country has been borrowing to plug a budget deficit since 2016 as the precipitous drop in oil price of mid-2014 that led to a recession in 2016 and the coronavirus pandemic that resulted in economic downturn in 2020 significantly undermined government revenues.

Of course, total Naira value of the debt stock has been growing due to incessant devaluation of the currency by the central bank that has been unable to rein in hot-red inflation.

Foreign exchange (FX) devaluation has also played its part in driving the total Naira value of the debt stock upwards, as the official rate was devalued by 26.1% between 2016 and 2021.

Nigeria’s total debt stock rose 20.2% y/y to ₦39.6tn in FY:2021 from ₦32.9tn in the previous year. Accordingly, its debt-to-GDP ratio increased to 22.8% from 21.6% in 2020, according to data from the Debt Management Office (DMO).

External debt accounted for 40.1 percent of total debt (₦15.9tn or $38.4bn). Domestic debt printed at ₦23.7tn (59.9% of total debt stock).

“We observed that although Nigeria’s debt-to-GDP ratio (22.8%) remains below DMO’s sustainable benchmark (40.0% of GDP) and IMF’s threshold for emerging economies (55.0% of GDP), the public debt has more than doubled since 2016, up 127.9%,” said analysts at Afrinvest Securities.

While Nigeria’s debt to GDP ratio is one of the lowest in the world, there are concerns the Buhari led administration is piling huge debt on the next generation and another fear is that a new president from his political party (All Progressive Congress) might toe the lane and continue with the borrowing binge.

Perhaps more worrisome is that the recent surge in crude oil price on the back of pent up demand and the Russian-Ukraine war has not started paving the way for the government to start meeting its financial obligations.

Nigeria’s debt-to-revenue ratio printed at 841.5 percent in 2021 implying that the country is borrowing around 8.4x of retained revenue while as of November 2021, debt service to-revenue amounted to 97.5%, as against budgeted provision of 49.1%, according to analysts at Afrinvest Securities.

Nigeria’s debt to GDP ratio of 19.10 percent is low when compared to Eritrea, (175.10 percent); Cape Verde, (16.07 percent); Mozambique, 133.60 percent; Angola, 103.70 percent; Mauritius, 101 percent; Zambia, 101 percent; Republic of Congo, 85.40 percent; Ghana, 83.50 percent; The Gambia, 82.30 percent;  Seychelles, 81.90 percent; Guinea-Bissau, 79.10 percent, and Rwanda, 74.80 percent.

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