Speaking on Nigeria’s high debt servicing, the president, African Development Bank , Dr Akinwunmi Adesina, said Nigeria must decisively tackle its debt challenges.
The AfDB boss pointed out that Nigeria’s challenge is revenue concentration, as the oil sector accounts for 75.4 per cent of export revenue and 50 percent of all government revenue. The domestic debt obligation payment was dominated by interests paid to investors in the FGN Bonds who were paid N839.18 billion in 2016, N982.66 billion in 2017, N1.11 trillion in 2018, N1.25 trillion in 2019 and N1.45 trillion in 2020.
An additional reason is that debt service payments tend to be elevated in Q1 and Q3 because the FGN’s external debt issuances are concentrated in those quarters. “This is just interest payment, not principal repayment; so when we are spending 90 per cent of our income to pay interest on the loans, it might look as if we enjoying it, but in the next two to three years we would not be able to continue like this.”
“It is important to ensure that the debt is used strictly to fund capital projects that would strengthen the productive capacity of the economy. This is position of the Fiscal Responsibility Act.” “It is true that you borrow when you don’t have enough revenue to finance your projects, but looking at the budget, N3 trillion is being set aside for debt servicing, not even for paying the principal. Even though the government says the GDP ratio puts us within the benchmark to borrow, it is not GDP that pays debt. Revenue pays debt and if we look at our debt-to-revenue ratio, we have cause to worry.
He said government is simply taking the easy way out of economic underdevelopment by relying too much on crude oil sales and borrowing as main sources to fund the annual budgets. Nigeria’s minister of Finance, Budget and Planning, Zainab Ahmed, had earlier noted that the country this year spent N2.02 trillion on debt servicing in the first six months of the year, representing 90.6 per cent of the retained revenue of N2.23 trillion for the period.
Noting that the borrowing projections in the 2022-2024 MTEF contradicts the provisions of the Medium Term Debt Strategy , which sets a portfolio composition of 70 per cent for domestic debt and 30 per cent external debt, he projected that debt service-to-revenue would be increasing in the medium term while capital expenditure, as a percentage of total federal government spending, would be decreasing in the medium term.
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