Nigeria’s debt/GDP ratio flutters as government debt burden surges on a declining revenue
Looking Nigeria’s debts position using debt/revenue metrics, the government total debts is 320% of its annual revenues.
This concern was also raised by the country’s Minister of Finance, Mrs Kemi Adeosun stating that Nigeria capability to service some of the debts is fast declining. Hence, the country may not borrow any more.
Though, this position has been refuted by the government stating that its debts/GDP ratio is one of the lowest in the world. Hence, the country’s capacity to accumulate more debts is still high.
Checking the fact, Nigeria current total debt is around 18.6% of its annual GDP. Inarguably, one of the lowest in the world and burdens accruing from them are still manageable. A position most economists have noted is far from a reflection of reality.
Looking Nigeria’s debts position using debt/revenue metrics, the government total debts is 320% of its annual revenues. A position that would fall worst due to the dwindling earnings from oil export.
This figure is one of the highest in the world and above the 196% median for Africa and Middle East countries. With a revenue/GDP ratio of 5.3%, the country’s ability to repay its debts may be at expense of major infrastructural developments.
“It’s always striking to see the level of government revenue in Nigeria in relation to GDP, which is very small,”Jan Friederich, a senior director in the sovereigns and the supranational group at Fitch stated.
With the presence of large informal economy, the country’s debt burden is being bored by 34.9% of its economy. Using the formal sector only, Nigeria’s debt/GDP would rose to a less comfortable 53.5%, a figure which calls for more action towards curtailing government debts accumulation and increasing its revenue diversification drives.
The picture painted by this scenario is that Nigeria would find it hard servicing some of the debts, as the debt/GDP ratio is showing a fluttering picture, not a reality.
This position was also taken by Charles Robertson, Chief Economist at Renaissance Capital stating that adopting an adjusted measure would show the precarious state of the government position.
“Nigeria is going to have a harder time servicing a debt burden of 17 per cent of GDP than Ghana [at 72 per cent of GDP] because they are not collecting much revenues at the federal government level,” he says.
“For every 100 nairas they raise in tax revenues they are paying 67 nairas in interest, plus 90 nairas in wages. That is a good explanation about why their budget deficit is as big as it is.”
He notes that while Nigeria increased its official GDP reading by 89% in 2014 as a result of a statistical revision, thereby improving its debt metrics, “what didn’t change was government revenues”.
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