See History Of Nigeria Debt Below….

Following persistent budget deficits, Nigeria’s debt is now growing faster than the rate of Gross Domestic Product (GDP). Nigeria’s public debt data, which comprises federal and state governments debt combined, shows that debt has been growing at double-digit, compared to the growth of GDP at single digit. In 2013, debt grew at 33% compared to GDP growth of just above 5%. This pattern was repeated in 2014, 2015 and 2016, with debt growing by 12%, 12.5%, and 17.5%, respectively, while GDP growth has remained in single digit with growth rate of 5%, 6.5%, 2.5% and negative growth in 2014, 2015 and 2016, respectively.

According to data from the Debt Management Office (DMO), Nigeria’s public debt profile rose to 17.3 trillion at the end of 2016, compared to N12.6 trillion in 2015 and 11.2 trillion in 2014. External debt stood at US $11.4 billion while domestic debt stood at N13.8 trillion. Indeed, since the historical debt forgiveness of 2005, the growth in Nigeria’s public debt increased by N8.3trillion between 2012 to 2016 while the growth in GDP has averaged 3.4%.

This pattern is expected to continue this year when the 2017 appropriation process is completed and becomes law. The proposal contained in the budget presented to the National Assembly by the President contains a borrowing estimate of N2.3 trillion, from both domestic and international sources. The federal government has since borrowed US $1.5 billion by issuing two sets of Eurobonds. It still seeks to borrow $300 million from Diaspora fund and the rest from the World Bank and the international Monetary Fund (IMF) as budget support if they agree on differing policies on fiscal sustainability, trade restrictions, and wider exchange rate issues. The remainder will be borrowed from domestic sources.

The features of the growth in debt are troubling. First, the growth in debt is irrespective of the direction in oil prices. In 2013 and 2014, when oil price was growing, averaging about $100, deficit expenditure and debt were growing as well. It does mean that the growth in debt at a rate faster than GDP is irrespective of Nigeria’s terms of trade and business cycle.

Another feature of the growth is the recent growth in external debt. Available data shows increasing borrowing from international sources, compared to a decade ago. Following debt relief in 2005 and the setting up of the DMO, the government had concentrated borrowing in the domestic capital market in order to avoid currency and devaluation risks that accompany foreign debt. However, in the last few years, foreign debt as a component of Nigeria’s debt has also started to grow. Foreign debt has grown from $5bn in 2005 after the debt relief to $11bn in 2016 which represents a staggering 120% increase. These foreign loans reveal the increasing borrowing on long term concessionary terms from the Chinese and international development institutions.

The country’s low debt to GDP ratio, compared to many other countries, has provided the platform for recent successive governments in Nigeria to sustain the argument that the government can afford to borrow. Recently, the Minister of Finance, Kemi Adeosun had stated that “Nigeria has fiscal head space”.

While foreign debt now accounts for US $11 billion of Nigeria’s total public debt, and a mere 16% of GDP, there are implications for continuous faster debt growth than the rate of GDP.

Following the growth in debt at a rate faster than GDP, the growth in debt to GDP ratio has risen dramatically in the last few years. Nigeria’s debt to GDP ratio in 2016 stood at 21.38% compared to 15.86% and 14.20% in 2015 and 2014 respectively. Continuous increases in the debt to GDP ratio will worsen the outlook for the sustainability of Nigeria’s debt, constrain the ability to pay, and drive up the cost of servicing the debts.

A faster debt than GDP growth will exacerbate Nigeria’s government difficulties in meeting debt repayments, and lead to frequent debt rescheduling. This is even more important focusing on the ability to pay, as measured by debt to revenue ratio.

The revenue to debt servicing cost ratio grew from 20.5% in 2011, 21.7% in 2012, 23.7% in 2013, 29% in 2014, and 38.2% in 2015. There is need for an urgent diversification of our revenue base to cut deficits thereby enabling more funds into the economy without too much borrowing.

If Nigeria still depends on oil for majority of its revenue, volatility of oil price means oil is no longer reliable and it will definitely affect our revenue. Capital project which grows the economy will also suffer and this means borrowing continues at the expense of our GDP because most of the funds we borrow may be used for recurrent expenditure. Assessing the debt dynamics from this perspective shows increasing strain on government finances to meet its growing debt obligations.

A faster debt than GDP growth often implies not only persistent budget deficits, but can also mean debt rescheduling and high interest rates will have implications for Nigeria’s ability to incur more debt and also lowers investor confidence. Already, Nigeria’s debt is currently poorly assessed by rating agencies. In January, Fitch Ratings, a global credit rating agency, revised Nigeria’s Long Term Foreign and Local Currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at ‘B+’ from ‘BB-‘.The downgrade in Nigeria’s foreign and local currency IDR, coupled with increasing debt to GDP ratio will negatively impact the country’s chances in securing foreign loans.

This year, Nigeria has successfully borrowed from the international market. A faster debt than GDP growth may lead to a point where it is not possible.