KPMG report: Nigeria’s debt servicing nearing 100 percent
A report by KPMG on Nigeria’s tight revenue to service her debt obligations said the country may end up committing 100 percent of her earned revenue on debt servicing unless steps were taken to improve revenue earnings.
The International tax- audit and advisory services firm said Nigeria’s debt service to revenue ratio may exceed 100 percent in 2023. In its macroeconomic snapshot released Thursday, the professional services firm raised concerns over Nigeria’s risk of sliding into critical debt servicing problems unless urgent actions were explored to significantly raise revenue.
Nigeria’s total debt stock is projected to be N77 trillion following recent senate approval of the securitisation of N22.7 trillion Ways and Means advances provided to the government by the Central Bank of Nigeria (CBN). The Debt Management Office (DMO) put the country’s public debt at N46.25 trillion by the end of 2022.
KPMG said with the N8.8 trillion expected new borrowings from both domestic and external means in the 2023 states and federal budgets, the total debt stock will likely stand at about N77.8 trillion by the end of 2023.
In 2022, Nigeria’s debt service-to-revenue ratio was 80.6 percent — a figure far above World Bank’s suggested 22.5 percent for low-income countries like Nigeria.
“With FGN revenue to GDP ratio of 4.49 percent as of December 2022, Nigeria’s debt service to revenue ratio may surpass 100 percent in 2023, which will limit the fiscal space and the government’s ability to pay for its operations and functions, unless urgent measures are taken to build revenue,” KPMG said.
“This is however unlikely, being a transition year with the outgoing administration winding done and a new one starting which would require time to set up and settle before new policies can be introduced and work.”
KPMG said the new administration might even be compelled to borrow even more to run its government and stimulate much needed growth in physical and social capital.
To do this, it might need to widen the various legal and self-imposed restraints and buffers relating to deficit financing.
KPMG advised the government to establish well-thought-out guidelines and frameworks for borrowing, focusing on sustainable debt management and giving investments that produce long-term economic returns top priority.
This, the firm said, would help the government to avoid defaulting on loan terms, which could harm the country’s credit rating and confidence in borrowing money.
