In just seven years, the cost of servicing federal government’s debt stock rose more than three places to N1.64 trillion in 2017 from N527 billion in 2011.
Elevated debt service liability pushing government’s recurrent expenditure further higher has risen sharply in 2018 to more than N2.01 trillion proposed for it, leaving FG with a debt service to revenue ratio of 69.2 percent as at end of third quarter 2018, up from 56.2 percent in 2017 when debt stock stood at about N18.4 trillion.
In the first nine months of 2018, for instance, the Federal Government had spent N2.21 trilliin on domestic debt servicing which was far more than it had proposed for debt servicing in the entire year.
For this fiscal year, government has already proposed N2.26 trillion for debt servicing, indicating 25 per cent of the N8.83 trillion which the Federal Government proposed for 2019.
This means that the proposal for debt servicing in 2019 is 12.44 per cent higher than what was proposed for the same purpose in 2018.
There has been growing concern over looming economic crisis on the back of falling oil prices which threaten revenue accretion and attendant foreign exchange earnings as well as possible depletion of foreign exchange reserves.
“Without an improvement in revenues, if borrowing continues at the current pace, the government may be using all of its revenues to meet debt obligations. This would reduce spending on public goods and services, which the government is expected to provide,” analysts at Afrinvest West Africa said.
Expressing concern over FG’s elevated debt servicing costs, the Lagos-based investment and research firm stated in an emailed note at the weekend that “…FG’s debt service to revenue could moderate to 56.2 percent from 69.2 percent as at 9M:2018 if petrol subsidies are removed, and government rein in its administrative costs to reduce spending, and in turn borrowings.”
“We believe that there is still scope for improved revenues if petrol subsidies are removed and the official exchange rate moves towards the NAFEX rate of N360/US$,” said the analysts in a published market update.
It however gave up hope on government being able to narrow the wide gap saying that with the new minimum wage, recurrent expenditure would remain pressured.
In November last year, the IMF had pointed out that the country was spending more than 50 per cent of its revenues on servicing of debts.
According to IMF’s Senior Resident Representative and Mission Chief for Nigeria, African Department, Amine Mati, Nigeria’s expenditure on debt servicing was high compared to its income.
At the presentation of the Regional Economic Outlook for Sub-Saharan Africa – Capital Flows and the Future of Work, Mati said that although Nigeria’s debt to Gross Domestic Product remained low at between 20 and 25 per cent, the country spent a high proportion of its revenue on debt servicing as a result of low revenue generation.
In 2012, debt servicing gulped N679 billion, but rose to N828 billion in 2013, and further increased to N942 billion in 2014.
As government’s debt stock increased in proportion to about N12.7 trillion by 2015, debt servicing cost jumped hitting N1.06tn.
By 2016, it had risen to N1.31 trillion on the back of fresh loans taken by the sitting government which has borrowed more than N10 trillion in three years.
In 2017, debt servicing cost hit N1.64 trillion as the country’s total debt stock rose to about N22.7 trillion before government repaid $500 million Euro bond.
External and domestic debts of the Federal Government, the 36 states of the federation and the Federal Capital Territory (FCT) stood at $73.213 billion, equivalent of about N22.4 trillion as at end of September 2018.
While domestic debt of the FGN, States and the FCT grew by 1.19 percent from N15.629 trillion in June 2018 to N15.814 trillion in September 2018, foreign debt stock declined debt stock declined by 2.02 percent to $21.592 billion due largely to government’s redemption of a $500 million Eurobond which matured on July 12, 2018.
Domestic debt stock increase of N185billion was attributed to the FGN (N135 billion) and States and FCT (N50 billion).
The combination of an increase in the level of domestic debt and decrease in the external debt stock, resulted in a slight shift in the composition of the country’s debt portfolio.
As at September 30, 2018, the share of domestic debt was 70.51 percent compared to 69.83 percent in June 2018.