According to the Debt Management Office, Nigeria’s total public debt will reach N87.38 trillion by the end of the second quarter of 2023.
The result reflects a 75.29 percent gain, or N37.53 trillion, over the N49.85 trillion recorded at the end of March 2023.
According to a report issued by the DMO on Thursday, the debt comprises N22.71 trillion in Ways and Means Advances from the Central Bank of Nigeria to the Federal Government.
According to the DMO, “Nigeria’s total public debt stock as of June 30, 2023, was N87.38 trillion ($113.42 billion).” It includes the Federal Government of Nigeria, the thirty-six states, and the Federal Capital Territory’s total domestic and external debts.
“The major addition to the Public Debt Stock was the inclusion of the N22.712tn securitized FGN’s Ways and Means Advances.”
Other additions to the debt stock included fresh borrowings from domestic and overseas sources by the Federal Government and sub-nationals, according to the statement.
It went on to say, “The reforms already implemented by the current administration, as well as those that may emerge from the Fiscal Reform and Tax Policies Committee’s recommendations, are expected to impact debt strategy and improve debt sustainability.”
Following the National Assembly’s ratification of former President Muhammadu Buhari‘s request to reorganise the CBN’s Ways and Means Advances, the DMO had previously forecast that Nigeria’s public debt burden may reach N77tn.
The Ways and Means Advances lending facility is used by the CBN to finance budget gaps in the government.
Patience Oniha, Director-General of the DMO, stated during a public presentation of the 2023 budget sponsored by former Minister of Finance, Budget, and National Planning, Dr Zainab Ahmed, that the debt would be N70 trillion without N5 trillion in fresh borrowing and N2 trillion in promissory notes.
However, according to the most recent data, the current debt stock of N87.38tn exceeded the DMO’s prediction by N10.38tn.
Nigeria has a total internal debt of N54.13 trillion and a total external debt of N33.25 trillion, according to the breakdown.
While domestic debt accounts for 61.95 percent of total debt, external debt accounts for 38.05 percent.
Within three months, both domestic and external debt increased significantly, according to the Foxiz Nigeria.
Domestic debt increased by 79.18% from N30.21tn in Q1 2023, while external debt increased by 69.28% from N19.64tn.
The DMO stated in its 2022 Debt Sustainability Analysis Report that the Federal Government’s expected revenue of N10tn for 2023 could not support new borrowings.
According to the agency, the government’s estimated debt service-to-revenue ratio of 73.5 percent for 2023 is excessive and poses a risk to debt sustainability.
“It means that the revenue profile cannot support increased borrowing levels.” To achieve a sustainable FGN Debt Service-to-Revenue ratio, FGN Revenue would need to be increased from the N10.49tn envisaged in the 2023 Budget to almost N15.5tn.”
According to the DMO, the government must prioritise revenue generation by implementing far-reaching revenue mobilisation initiatives and reforms, such as the Strategic Revenue Growth Initiatives and all of its pillars, in order to raise the country’s tax revenue to GDP ratio from around 7% to that of its peers.
The Federal Government would be unable to borrow more since it is approaching its self-imposed debt limit of 40%, according to the DMO.
DMO recommended that the government should encourage the private sector to fund some of the capital projects that were being financed by borrowing through public-private partnership initiatives in order to minimise borrowing and the budget deficit.
It further stated that the Federal Government can cut borrowing by privatising and/or selling government assets.
Nigeria’s low revenue production has forced the government to borrow more over the years.
President Bola Tinubu, on the other hand, has stated his administration’s determination to breaking the cycle of overreliance on borrowing for public spending and the resulting burden of debt servicing on management of limited government resources.
The President assigned the Presidential Committee on Fiscal Policy and Tax Reforms, directed by Taiwo Oyedele, with improving the country’s income profile and economic environment.
Ways and Means
According to Adeola Adenikinju, a Monetary Policy Committee member, both government revenue and expenditure underperformed between January and May 2023.
According to his personal statement given by the Central Bank at the most recent MPC meeting, the FG retained revenue was at N1.67tn, lower than the pro-rata objective of N1.97tn, due to underperformance of FAAC revenues, gross independent revenue.
“In the same vein, total FGN expenditure as of May 2023 was N4.77 trillion, 27.8 percent less than the budget estimate of N6.61 trillion,” he stated. The shortfall was primarily due to debt service, interest on Ways and Means, and capital spending.”
However, he said that the increase in FAAC over time would aid in regulating the FG’s and sub-national entities’ dependence on indebtedness to finance government activities.
“This would also reduce Ways and Means finance and, eventually, inflationary pressures from the monetary side,” he added.
Naira devaluation
Gabriel Idahosa, Deputy President of the Lagos Chamber of Commerce and Industry, highlighted the naira depreciation as a major contributor in increasing the state debt in naira terms.
He went on to say that the incoming administration could have inherited secret debts that had accumulated to bring the total to N87tn by the second quarter of the year.
“The foreign exchange conversion will easily move the debt from N37tn to around N64tn,” he said. So, prior to convergence, the rate was approximately N460. The CBN rate is currently about N800. That is nearly double. So it’s not all that mysterious.
“The only problem is that there is still a gap; it shouldn’t be up to N87tn unless additional debt is taken on.” It is possible that certain debts were not captured until the new government opened the accounts.”
Similarly, Sheriffdeen Tella, a professor of Economics at Olabisi Onabanjo University, attributed the huge growth in Nigeria’s total debt to the floating of the currency.
“You see, the naira depreciated significantly in the second quarter,” Tella explained. As a result, the debt would have been calculated using the depreciation. Domestic borrowing surged as a result of central bank borrowing to pay off subsidy commitments.
“The government borrowed to pay for subsidies, and those subsidies were steadily increasing.” If you convert it to dollars, it won’t be as much, but because the naira has devalued, it will climb dramatically in naira terms by the time you perform the multiplication.”
Revenue challenges
Prof. Jonathan Aremu, an economic specialist and former Assistant Head of Research at the CBN, said there was nothing wrong with debt but that it was important to look into why debts were being created.
He said, “Like I used to say, there is nothing wrong in borrowing. Borrowing is divided into two, when you borrow to finance the budget that is productive and boosts economic growth, that is good. If it is borrowing to finance infrastructure, then we have productivity in the economy. But when you borrow for dead weights, i.e., to say it doesn’t have productive uses, that is where the question arises. Any borrowing that is meant for domestic consumption, not investment is a tax on the incoming generation and is not a sustainable borrowing.”
He went on to say that the country’s enormous debt will have an impact on any subsidy gains. “The money we pay in terms of capital and obviously the repayment of interests will affect whatever gain we gain from other sectors,” Aremu noted.
Furthermore, MPC member Adenikinju stated that, while debt is an issue, work must be done to increase the country’s revenue.
“This demonstrates that we need to address our revenue challenges,” he said. If you do not have enough revenue, debt becomes an issue. As a result, it is critical that the government consider how it might generate money to service the debt while also establishing long-term economic growth in the country.”
He noted that several of the government’s recent efforts, such as eliminating fuel subsidies, addressing the exchange rate issue, and establishing a tax reform committee, will assist the country improve its income base.
Adenikinju added, “In addition to raising revenue, we must ensure that we do not incur additional debt to the one we already have, unless we have assurance that the debt will lead to economic growth and revenue generation.”
“The cost of governance has been raised, and this is something that the government needs to look into.” It must be handled. The good news about our debt is that the majority of it is owed to multilateral organisations, and repayments are spread out over a lengthy period of time. In addition, the CBN debt has been securitized, enabling for payments over time. So, yes, we have debt, but the structure of the debt isn’t always a problem.”
