Nigeria’s Debt Service Cost Up 23.4% to N3.04 Trillion

Kayode Tokede

With its current N44.06triillion total debt stock as of September 2022, Nigeria has spent N3.04trillion to service external and domestic debts in nine months of 2022, representing an increase of 23.4 per cent Year-on-Year (YoY) from N2.46 trillion reported in nine months of 2021, the Debt Management Office (DMO) data has revealed.

A breakdown of the N3.04 trillion debt service payments revealed a total N2.15trillion was used by the federal government to service domestic debts in nine months of 2022.   

The DMO numbers revealed that federal government debt service payments for domestic debts such as Treasury bill, FBN Bond, Green Bond and Sukuk bond borrowings increased by 23.5 per cent YoY in nine months of 2022 over the need to bridge 2022 budget finance deficit. 

On the external side, the FG debt service payments with multilateral, bilateral, Eurobond and Diaspora Bond also increased by 23.14 per cent in the period under review.

Analysis of the DMO data revealed that the federal government domestic debt service payments in first quarter of 2022 stood at N668.69 billion but dropped to N664.7billion in Q2 2022. The figure increased to N820.59billion in Q3 2022 as government intensifies selecting N685.61 billion FGN Bonds borrowing.  

On the flipside, the government service its external debt with N288.5billion or $694.01million in Q1 2022 and N247.98billion or $597.95million in Q2 2022, according to DMO report.

In Q3 2022, the government debt service payment closed at N346.43billion or $801.23million.

The government has intensified its external borrowing debt service payment with international agencies such International Development Association (IDA), EXIM Bank of China and Eurobond.

Investigation by THISDAY revealed that the federal government debt service payments with EXIM Bank increased to $252.07 million in nine months of 2022 from $207.67million reported by the DMO in corresponding nine months of 2021.

The government had borrowed from these agencies to finance projects such as:  Nigeria Railway Modernisation Project (Idu-Kaduna Section), Nigeria Railway Modernisation Project (Lagos – Ibadan Section), Nigeria Abuja Light Rail Project, Nigeria ICT Infrastructure Backbone Project, Nigeria Four Airport Terminals Expansion Project and Nigerian Zungeru Hydroelectric Project.

Other projects are: Nigerian Rehabilitation and Upgrading of Abuja-Keffi-Makurdi Road Project, Nigeria Greater Abuja Water Supply Project and   Nigeria National ICT Infrastructure Backbone Phase II Project.

Experts have raised concerns as the federal government continues to obtain new loans from both local and external sources, despite growing debt profile and servicing cost.

The Director-General, Debt Management Office (DMO), Ms. Patience Oniha, recently in Lagos disclosed said the federal government between 2015 and 2021 debt service payments was N14.86trillion and revenue generated was at N25.43 trillion. 

She also disclosed that debt service payments between January and June 2022 stood at N3.09 trillion, while revenue was at N3.66trillion.

She, thus, stressed on the need for Nigeria to operate an efficient tax administration to tackle revenue challenges.

According to her, Nigeria needs to operate an efficient tax administration that would ensure greater compliance to remittances devoid of all forms of evasions in the system.

Speaking from a different perspective, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka stated that the debt servicing by the federal government over the years has encouraged investors to provide additional support to the government with respect to further investment in government securities.

According to him, “It presents government in good light, with the opportunity to fund developmental projects across the country. The negative aspect of debt servicing in Nigeria is the sustainability problem that has now greeted the current administration of President Muhammadu Buhari, whereby, more than 100per cent of revenue is now being expended on debt servicing, giving room for possible default and failure of government in no distant future, especially with respect to foreign debt component.

“The fact that government spends its entire revenue to service debts, despite introducing new taxes and raising rates in some others, is an indication that economic agents are not generating enough outputs, sufficient to put Nigeria’s economy in the positive territory. It is actually a sign of declining output. It is simply a failure of fiscal policy.”

He hinted that the only way to cut the debt service figure down is for government to shift away from its current public sector dominance, and allow private sector businesses to occupy the driver’s seat, so as to consistently put the economy in the positive territory.

“Government should begin to consider removing subsidies in phases, in a manner that will not add more to the hardship on the ground. It also presents an opportunity to allow the economy to run a normal course of adjustment,” he added.

On raising debt profile, the CEO, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said,  “Although government tends to argue that the conditions was not a debt problem, but a revenue challenge.  But debt becomes a problem if the revenue base is not strong enough to service the debt sustainably.  It invariably becomes a debt problem and possibly a debt crisis.  Government actual revenue can hardly cover the debt service obligations.

“Which implies that the entire capital budget and the recurrent expenditure may have to be funded from borrowing. This is surely not sustainable.  The finance minister reported recently that in the first four months of this year, debt service to revenue ratio was over 100per cent.”

According to him, “What is needed is the political will to cut expenditure and undertake reforms that could scale down the size of government, reduce governance cost and ease the fiscal burden on the government.

“It is important to ensure that the debt is used strictly to fund capital projects, especially infrastructure projects, that would strengthen the productive capacity of the economy.  This is the position of the Fiscal Responsibility Act.  Additionally, emphasis should be on concessionary financing, as opposed to commercial debts, which are typically very costly.”