Nigeria’s unflinching commitment toward borrowing has been projected to capsize the nation’s economy as the International Monetary Fund has warned that debt servicing may swallow 100 per cent of the Federal Government’s revenue by 2026 if the government fails to implement adequate measures to improve revenue generation.
Ari Aisen, IMF’s Resident Representative for Nigeria, disclosed this frightening development while presenting the Sub-Saharan Africa Regional Economic Outlook report recently in Abuja.
He stated that based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts may wipe up the country’s entire earnings in the next four years.
Recall that early this year, it was revealed that the President Muhammadu Buhari-led Federal Government spent N4.2tn on debt servicing between January and November 2021, which represents 76.2 per cent of the N5.51tn revenue generated during the period.
More so, the Federal Government plans to spend N3.61tn on servicing Nigeria’s debt burden in the 2022 fiscal period, which represents about 34 per cent of the 2022 projected revenue of the Federal Government.
Experts are of the view that Nigeria’s debt stock, which is about N39.56tn as of December 2021, is likely to reach N45.95tn following plans by the Debt Management Office to borrow an additional N6.39tn to finance the 2022 budget deficit.
In his remarks, the IMF rep expressed worry that many African countries, including Nigeria, risk sliding into a critical debt servicing problem unless urgent actions were explored to significantly raise revenue.
He said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue almost 100 per cent is projected by 2026 to be taken by debt service.
“So, the fiscal space or the amount of revenues that will be needed and this without considering any shock is that most of the revenues of the federal government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.
It is a reflection of the low revenue of the country. The country needs to mobilise more revenue to be able to have macroeconomic stability. It has become an existential issue for Nigeria.”
The funds rep also lamented that being an oil exporter, Nigeria was not only unable to take advantage of the current global high oil prices to build reserves due to the subsidy on petroleum products.
He continued that Nigeria’s subsidy bill would likely hit N6tn by the end of this year at the current monthly subsidy bill of N500bn.
He, however, expressed optimism that the Dangote Refinery would reduce fuel importation when completed, in order to reduce the subsidy burden.
In his detailed and jaw-dropping remarks, Aisen also warned that soaring food prices and next year’s general election are threats to the country’s economy.
He said “persisting insecurity – particularly banditry and kidnapping – and the forthcoming 2023 elections that may affect the performance of the economy”.
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