Nigeria’s debt-to-GDP ratio is lower than Egypt, Ghana, South Africa, and Kenya amid concerns the current revenue issues expose the country to debt sustainability risk.
As at end-September ’22, Nigeria’s public debt is equivalent to 25.40 percent of 2021 nominal GDP, which is relatively low when compared with other African emerging economies such as Egypt (87 percent), Ghana (82 percent), South Africa (69 percent), and Kenya (68 percent), according to a recent report by Coronation.
The research firm in the report said the country’s ratio is in line with the Debt Management Office (DMO) debt target of a debt to GDP ratio of 40 percent for the period 2020-2023 and below the limit of 55 percent set by the World Bank for countries within Nigeria’s peer group.
“It is also below the 70 percent set by the Economic Community of West African States,” said the research firm.
The nation’s overall public debt as of Sep-2022 was N44.1 trillion, with a sizable chunk (61.1 percent) coming from the local debt market. This is set to increase beyond the N50.0 trillion mark in 2023.
The debt-to-GDP ratio of emerging markets and developing countries have risen due to stronger dollar, budget deficits and slower economic growth as higher energy prices and the Russia invasion of Ukraine stoked inflation that is forcing central banks to hike interest rates.
Of course, there are concerns that oil theft and pipeline vandalism, which undermines a source of foreign exchange earnings, cast a shadow on how Nigeria is going to service interest on its debt.
In a recent presentation, the World Bank’s new lead economist for Nigeria predicted that in 2023, debt payment will consume 123.4 percent of the Federal Government’s (FG) revenue. This is based on the presumption that the current revenue issues won’t be resolved.
Analysts at United Capital Limited in a note to client are of the opinion that rescuing Nigeria from an impending debt crisis will require genuine fiscal reforms that would: 1) maximise revenue generation sources 2) block leakages among government MDAs 3) reduce wastages from governance costs 4) eliminate the subsidy regime.
“Demonstratable results from such reforms will provide a base for debt renegotiation and restructuring terms with targeted lenders,” said analysts at United Capital Limited.