Nigeria Has Room for More Public Debt, Expert Insists

Must Read

List of Access Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...

List of Guaranty Trust Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is...

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...
- Advertisement -

Most of the recent arguments surrounding Nigeria’s public debt in Q1 2019, following the Debt Management Office (DMO) publication on 10 July 2019, focus on the increase of N560billion Little has been said about the real issue, which is the ability of the Federal Government of Nigeria (FGN) to service the debt from the current low revenue and, more importantly, to offer solutions or ideas on how the government can manage its debt portfolio in the short-term, taking advantage of the opportunities the financial markets, both local and global, present. In addition, efforts have not been made to compare the debt sustainability of the DMO with the debt figures. And finally, there is a need to make a comparison with other countries. Putting everything together, FSDH Research concludes that Nigeria can still increase its public debt. However, more accountability is required in the use of the borrowed fund. Revenue and interest expenses also need to be properly matched.

As noted in our previous reports, just as individuals and companies are faced with the dilemma of whether or not to borrow, countries also face the same problem. Although it is difficult for any country not to borrow, there are key questions each country must ask. How much debt should they contract? What projects will the debt be used for? How will the loan be repaid, as well as the associated interest? Whom should they approach to lend the money? What will be the impact of the loan servicing on the country’s ability to perform her obligations to the citizens? Some countries have shown that debt in itself is not bad. What truly matters is the productivity of the debt that is contracted. Countries such as China, South Africa, India, UK and USA have high Debt-to-Gross Domestic Product (GDP) of over 50%.

These countries, however, have managed to deploy their borrowings into activities that can
stimulate revenue generation including education, transportation, construction, security,
technology, and other growth-enhancing infrastructure. By utilising these borrowed funds in
areas that improve the ease of doing business in their countries, they have been able to grow their economies further, attract new investment, create job opportunities, and establish more avenues for their governments to grow their revenue. So, in itself, debt is not bad after all. However, the loan contracted must not be spent on consumption. If a 30-year loan is contracted but is spent on a year of consumption, there is a problem as unborn generations will carry the burden of paying for what they did not enjoy. But imagine using the loan to improve infrastructure and security in the country that will lead to job creation, people will be willing to pay taxes from which government will repay the loan.

Read Also:  Bling Lagosians Rakes in 100 Million Naira Box Office Revenue in 29 Days

In reviewing Nigeria’s debt prole, FSDH Research observes that the level of debt has been on the increase over the years. As at the end of March 2019, the total public debt increased to N24.95trillion from N24.39trillion as of December 2018. For a country with a Gross Domestic Product (GDP) of over N130trillion, that debt level is not too much. The debt-to-GDP ratio is 19.03%, which is below both the 25% benchmark set by the FGN and the 56% international threshold set for countries in Nigeria’s economic peer group. Therefore, Nigeria is actually under borrowing at the current level. It has the capacity to borrow an additional N7trillion, given the 25% benchmark. The main problem, however, is the country’s ability to service the debt without causing untold hardship on the country. In measuring the ability of Nigeria to service her debt obligations, we look at the ratio of domestic debt service-to-FGN Federation Account Allocation Committee (FAAC) allocation. This is where the problem lies in Nigeria. Low revenue generation makes it very difficult for the FGN to meet its debt obligations without sacrificing other important responsibilities.

- Advertisement -
Read Also:  US emerges UK’s biggest oil supplier, overtakes Nigeria, others

As outlined in our previous reports, FSDH Research notes that the current high debt service to revenue structure in Nigeria is unsustainably high and the high figure is due to the low revenue of the country. Although the strategies of the DMO in debt management and the Central Bank of Nigeria (CBN) in monetary policy administration have reduced the interest burden of the government, Nigeria needs to accelerate revenue generation to enable it to meet all her debt obligations without stress.

FSDH Research recommends that the DMO considers the issuance of discount bonds (zero-coupon bonds) to manage the interest expenses of the FGN in the short-term. The low-interest-rate environment, both in Nigeria and in the international market, provides a good opportunity for the government to lower its interest expenses. There is also high appetite at the moment for quality fixed income securities. However, we cannot overstress the importance for loans to be tied to specific projects which will increase the competitiveness of the Nigerian economy to attract investment, create job opportunities and generate diversified revenue for the country.

Nigeria Has Room for More Public Debt, Expert Insists - Brand Spur

Nigeria Has Room for More Public Debt, Expert Insists - Brand Spur

- Advertisement -
Nigeria Has Room for More Public Debt, Expert Insists - Brand SpurNigeria Has Room for More Public Debt, Expert Insists - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Nigeria Has Room for More Public Debt, Expert Insists - Brand SpurNigeria Has Room for More Public Debt, Expert Insists - Brand Spur

Latest News

Lagos Ready To Deliver 4th Mainland Bridge – Sanwo-Olu (Photos)

A major step towards the realisation of the 4th Mainland Bridge was today, taken by the State Government with...

FrieslandCampina WAMCO completes purchase of Nutricima’s dairy business.

The acquisition provides FrieslandCampina WAMCO with additional production capacity to meet the growing demand for locally produced evaporated milk and powder milk. In addition,...

GTBank Fashion Weekend Returns for the 5th Year, Holds Nov. 14 – 15, Call for Exhibitors Now Open

Foremost financial institution Guaranty Trust Bank Plc has confirmed that the 5th edition of Africa’s premier fashion event, the GTBank Fashion Weekend, will hold...

Corporates Endorse Nigeria Business League for Youth

Lagos, Nigeria. Thursday, September 29, 2020: The Chief Executive Officers (CEOs) of Nigerian Bottling Company Ltd, Matthieu Seguin; Nigerian Breweries, Jordi Borrut Bel; Cadbury Nigeria...

Kimberly-Clark Nigeria signs exclusive deal with MCPL to reach more consumers.

September 29, Lagos, Nigeria - Kimberly-Clark Nigeria, manufacturer of well-known brands Huggies® and Kotex® has embarked on a new partnership with Multipro Consumer Products...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Nigeria Has Room for More Public Debt, Expert Insists - Brand SpurNigeria Has Room for More Public Debt, Expert Insists - Brand Spur