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Nigeria records high debt revenue ratio

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By Usman Oladimeji

The World Bank projects 102% debt service revenue for Nigeria.

Nigeria’s fiscal position continues to worsen as the cost of repaying debt exceeds the government’s revenue in the first quarter of 2022. According to the World Bank’s latest Africa’s Pulse report, a biannual analysis of the region’s near-term macroeconomic outlook, Nigeria’s public debt is alarming, with the debt service to revenue ratio potentially reaching 102.3 per cent by the end of 2022. Even at a low level (36.6%), public debt in Nigeria remains a concern as the country recorded a high debt service-to-revenue ratio (118.9%) between January and April.

The World Bank committed $7.93bn in the 2022 fiscal year, July 2021 to June 2022, this was an increase of 74.67% from the $4.54bn recorded in the 2021 fiscal year, July 2020 to June 2021. A total of $38.2 billion has been committed by the World Bank to Nigeria between 2018 and 2022. 2018 saw the largest commitment at $10.45bn throughout this time frame. Due to its increasing debt, Nigeria is now among the World Bank’s top 10 IDA debtors.

Nigeria plans to increase development with the IDA loan.

As of June 30, 2022, Nigeria has accumulated $13 billion in IDA debt stock, putting it in fourth place on the list according to audited financial accounts for IDA from the World Bank’s Fiscal Year 2022. Except for Nigeria, the top five have all reduced their IDA debt stock. It is anticipated that the IDA loan of $750 million would assist Nigeria in accelerating the execution of important initiatives that will enhance the climate in which businesses may thrive in individual states.

Shubham Chaudhuri, World Bank Country Director for Nigeria said in a statement that “Following the significant progress made by states on fiscal reforms through the State Fiscal Transparency, Accountability, and Sustainability program, the SABER program aims to offer similar support to the states to undertake critical business-enabling policies and institutional actions that will incentivize private sector development. He further emphasized that the private sector is still the primary driver of employment growth, state revenue growth, and improved economic and social response.”

High oil prices underperformed to increase revenue.

According to the International Monetary Fund (IMF) resident representative for Nigeria, Ari Aisen, by 2026, Nigeria’s debt service payments might consume as much as 100% of the country’s GDP. He discloses this in Abuja while delivering the group’s most recent Sub-Saharan Africa Regional Economic Outlook. In addition, the IMF predicted in February that Nigeria may spend 92.6% of its earnings on debt service in 2022. However, he warned that unless action was taken to reduce the country’s debt, the number will only rise.

Compared to the first quarter of 2022, yearly economic growth in Nigeria dropped from 3.6% to 3.4% in the second quarter. According to the research, higher oil prices weren’t sufficient to make up for severe oil production shortages due to some shortfalls including shut-ins caused by pipeline vandalism and crude oil theft, as well as high petrol subsidy costs due to higher landing costs of imported items. Non-oil taxes, on the other hand, fell short by a bit, averaging 92.6% of projections.

The government may receive a high increase in revenue.

Due to the increase in petroleum products subsidies, high oil prices do not reflect in government revenue. One of the greatest hurdles to achieving debt sustainability is the combination of poor productivity in the oil sector and unsustainable subsidies. The analysis predicts that if oil theft and pipeline vandalism are prevented, the revenue situation will improve in the second quarter of 2022. It was also noted that some non-oil taxes are seasonal, meaning that the government anticipates receiving a large increase in revenue as the year progresses. The debt service to revenue ratio is now over the nation’s aimed level, but with the anticipation of enhanced revenue collection, this ratio should be reduced.

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The World Bank: Website

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