A multinational consulting firm, KPMG, has raised concerns over Nigeria’s debt burden, saying the country may use 100 per cent of its 2023 revenue to service debt.
“With FGN revenue to GDP ratio of 4.49 per cent as of December 2022, Nigeria’s debt service to revenue ratio may surpass 100 per cent in 2023, which will limit the fiscal space and the government’s ability to pay for its operations and functions, unless urgent measures are taken to build revenue,” KPMG said in its macroeconomic snapshot released on Thursday.
It explained that Nigeria’s debt per capita, which stood at N217,138 in 2022, may hit N365,258 by the end of 2023.
According to the firm, Nigeria must devise means to significantly raise revenue to avoid sliding into critical debt servicing challenges.
On the recent senate approval of the securitisation of N22.7 trillion Ways and Means advances provided to the government by the Central Bank of Nigeria, KPMG said Nigeria’s debt, which hit N46.3 trillion by the end of 2022, would immediately rise to about N70 trillion.
The firm said with the N8.8 trillion expected new borrowings from both domestic and external means in the 2023 states and federal budgets, the total debt stock will likely stand at about N77.8 trillion by the end of 2023.
In 2022, Nigeria’s debt service-to-revenue ratio was 80.6 percent — a figure far above World Bank’s suggested 22.5 percent for low-income countries like Nigeria.
According to KPMG, if Nigeria’s debt service to revenue ratio surpasses 100 percent in 2023, it will limit the fiscal space and the government’s ability to pay for its operations and functions unless urgent measures are taken to build revenue.
“This is however unlikely being a transition year with the outgoing administration winding down and a new one starting which would require time to set up and settle before new policies can be introduced and work,” KPMG said.
The firm expressed concerns that the incoming administration might be compelled to borrow more to run its government and stimulate much-needed growth in physical and social capital.
“To borrow more might need to widen the various legal and self-imposed restraints and buffers relating to deficit financing,” it said.
KPMG said the securitisation of the CBN ways and means, as approved by the Senate, provides for the issuing of debt instruments with a 3-year moratorium on the principal, a 40-year term, and an annual interest rate of 9 percent per annum.
“The immediate impact of this is that Nigeria’s debt which hit N46.3 trillion by the end of 2022 will immediately rise to about N70 trillion,” KPMG said.
“This is representing 35 percent of the 2022 nominal GDP which is close to the government’s own self-imposed target of 40 percent.
“However, with the N8.8 trillion expected new borrowings from both domestic and external means in the 2023 States and Federal budgets, the total debt stock will likely stand at about N77.8 trillion by the end of 2023.”