As Nigeria’s external reserves ebbed to $44.8 billion last Monday, from over $45 billion announced by the Central Bank Governor, Godwin Emefiele, the prior week, apprehension is now on the increase over its trajectory as debt service-to-revenue ratio, outlined in the 2019 Budget, is set to hit 70 per cent.
This is coming barely seven months after the Senior Resident Representative of International Monetary Fund (IMF) in Nigeria, Mr. Amine Mati, warned fiscal and monetary authorities that “debt servicing, which currently takes about 50 per cent of the country’s revenue, is certainly high.”
He then advised that it was high time the government addressed Nigeria’s debt service/revenue ratio!
But from the look of things, it seems that warning was not heeded as N2.144 trillion or over 24 per cent of the N8.916 trillion budgeted for this year is waiting to be gobbled up by debt servicing obligations.
This is 6.46 per cent higher than N2.013 trillion used to offset debt obligations in 2018. But in the face of government’s dwindling revenue streams, Senator Udoma Udo Udoma, the erstwhile Minister of Budget and National Planning, announced before vacating office last month that the 2019 budget has overall deficit of N1.859 trillion which was 1.33 per cent of Nigeria’s gross domestic output. He added that the projected deficit would be funded mainly by borrowing N1.649 trillion from domestic and foreign debt markets.
“The implication of the deficit portion is that it will push the debt service-to-revenue ratio from 66 percent to above 70 percent in 2019, which is like spending N70 out of every N100 earned by the Federal Government to service debt”, says New Fortunes, a publication of Finance Correspondents Association of Nigeria.
Mati in his warnings last year noted that interest payment had become a major challenge as “a lot more of the resources are going into paying interests and there is less to spend on capital expenditure.”
The IMF chief advised that massive revenue mobilisation remained the only way to address the challenge but noted that Nigeria, was not doing well enough in that regard.
According to him, the Nigerian authorities rather than mobilising more revenue, its current strategy has been to cut expenditure in an economy with a very poor rate of spending.
He said “adjustment has relied on spending compression rather than revenue mobilisation,” adding that the nation has huge revenue potential that remained untapped.