Finance Reasons Nigeria cannot stop borrowing, even as debt hits $6.66 billion and increasing

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The situation is more serious than we ever thought.

The current debt serving burden on Nigeria;s annual revenue is too high for any meaning development to take place. play

The current debt serving burden on Nigeria;s annual revenue is too high for any meaning development to take place.

(Business Post)
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The Debts Management Office (DMO) of Nigeria announced that the total debts of Nigeria has hit $6.66 billion (N20.3t trillion). However, it is hard for Nigeria to cope with its borrowing.

According to the statement released by DMO on Tuesday, November 14, 2017,  the new figure represents about 4.2 percent increase in the country’s debts when compared with N15.03 trillion as at June 30, 2017.

Considering the huge cost of servicing this debt, can Nigeria really do without borrowing? The best answer, for now, is NO. Also, the country's 2018 budget shows government will be going to local and foreign borrowers to finance 23.28 percent (2.005 trillion) of the planned spendings.

Nigeria government is currently finding it hard to matching huge debt obligations with its dwindling revenue profile. play

Nigeria government is currently finding it hard to matching huge debt obligations with its dwindling revenue profile.

(Vanguard News)

Here are other reasons Nigerian government cannot do without going to the debt markets.

Also Read: Why government can’t execute capital projects in the 2017 budget – Nigeria’s Finance Minister

1.    Over-reliance on oil and low oil revenue

Nigeria’s reliance on oil export and corresponding revenue is epic. Thus, making the current low price of oil to have a great impact on the performance of the central government.

Mrs Kemi Adeosun, Nigeria’s Minister of Finance, also raised this concern.

"The problem is that we have been relying on oil and oil gave us a big budget size. It is one of our resources and as you know, it's only 10% of our GDP. So, the rest of our economy 90% has to contribute to our revenue,” she said during the Quarterly Presidential Business Forum held on Tuesday, July 11, 2017, at Aso Rock Presidential Villa in Abuja

Also Read: Nigeria’s external reserves to hit of $35bn, all thanks to Oil

2.    Under-performing non-oil sector and insignificant tax revenue

The current slowdown in economic activities has incapacitated the real sectors to take needed contribution to the economy. Thus, leading to poor tax revenue in the country.

Slide of the Dr Salami's lecture showing how the economy is doing play

Slide of the Dr Salami's lecture showing how the economy is doing

(Pulse.ng)

In the same vein, the government is constraint to introducing policies that would further negatively impact on the already bad situation. Hence, making going to debt markets the last option for the government.

3.    Current level of revenue can only pay salaries, and no capital project

The current level of revenue to the nation is only sufficient to cover the monthly salaries of workers, and no left-over for implementation of developmental projects.

Since there is a correlation between the volume of infrastructural facilities and level of economic growth in a country, the government would always be forced to go to the debt's market.

“There is a vast infrastructural deficit in the country, which we earnestly have to address this....The government released the first around N1.2 trillion for capital expenditure in 2016," Adeosun said during the Bloomberg/NSE CEO Roundtable held in Lagos on Friday, June 16, 2017.

Also Read: Nigeria government can only pay workers' salaries and can't borrow anymore says Adeosun

“It is as a result that we are borrowing to finance infrastructure, and we are setting huge fund aside for debts financing. It is a pain we have to endure for now, as we have to do what we have do."