According to the World Bank, debt servicing will consume 123.4 percent of the Federal Government’s earnings in 2023.
According to a presentation given by the new World Bank Lead Economist for Nigeria, Alex Sienaert, ‘Nigeria Public Finance Review: Fiscal Adjustment for Better and Sustainable Development Results,’ debt servicing would have consumed 100.2 percent of federal government earnings by the end of 2022.
This was a decrease from the prior forecast in the October Africa’s Pulse report, which is a biennial review of the region’s near-term macroeconomic outlook issued during the World Bank/IMF Spring and Annual Meetings in April and October.
The Washington-based bank stated in its Africa’s Pulse report that Nigeria’s debt service to revenue ratio might reach 102.3 percent by the end of 2022.
It has characterized Nigeria’s state debt as problematic owing to the increasing debt service-to-revenue ratio. However, the scenario would worsen in 2023, with debt levels over 118% of revenue reported in the first four months of 2022. The World Bank’s senior economist for Nigeria stated in his presentation document that borrowing additional money was not the solution for Nigeria.
“Borrowing more is not the solution: debt costs are fast growing, constraining non-interest spending,” the memo stated.
“Debt servicing has surged over the past decade and is expected to continue increasing over the medium-term, crowding out productive spending.”
Nigeria’s federal debt increased to N44.06 trillion in the third quarter of 2022, putting the government under financial strain. According to a news release posted on the Debt Management Office’s website, the total public debt stock increased from N42.84 trillion in the second quarter to N44.06 trillion in the third quarter of 2022. This indicated a 2.85 percent growth quarter over quarter, with Nigeria amassing N1.22 trillion in debt in three months.
According to the DMO, the increase in public debt was caused by additional borrowings by the Federal Government to help fund the deficit in the 2022 Appropriation Act, as well as new borrowings by sub-national governments.
It was also stated that the overall public debt stock comprised of N26.92tn in domestic debt and N26.92tn in overseas debt of N17.15tn.The World Bank recently said that Nigeria’s debt, which might be considered sustainable for now, was vulnerable and costly. According to the Washington-based global financial institution, the country’s debt was also at risk of becoming unsustainable in the event of macro-fiscal shocks.
The bank had said, “Nigeria’s debt remains sustainable, albeit vulnerable and costly, especially due to large and growing financing from the Central Bank of Nigeria.
“While currently the debt stock of 27 per cent of the Gross Domestic Product is considered sustainable, any macro-fiscal shock can push debt to unsustainable levels.
“However, the debt to the GDP in Nigeria is rising quickly, and the total stock of debt in absolute value has almost doubled between 2016 and 2020, and without a policy change is expected to reach 40 per cent of the GDP by 2025.”
The bank also raised worry over the nation’s debt servicing costs, which it claimed interrupted public expenditures and key service delivery spending. The Minister of Finance, Zainab Ahmed, confessed that Nigeria was struggling to service its debt during the opening of the World Bank’s Nigeria Development Update themed, ‘The Urgency for Business Unusual.’
She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”
