Nigeria has run budget deficits for decades, which have been primarily financed by new borrowings, Coupled with subnational borrowings has led to a growth in the national debt stock. According to the latest data published by the Debt Management Office (DMO), national debt stock as at 9M-19 stood at N26.2tn (up 16.9%y/y). Yet, the country’s debt to GDP ratio remained comfortable, at c.18.5% (Target: 25.0%), and the domestic/external debt mix stood within the target ratio of 60.0/40.0 (9M-19: 68.4/29.6).
While the need to continue to spend to improve the state of the country’s decrepit infrastructures and a below target debt-to-GDP ratio suggests Nigeria still has room for new borrowings in 2020. However, reluctantly high debt service to revenue ratio (above 50.0% — implying that the nation spends above N50.0 out of every N100.0 revenue on debt servicing)suggests otherwise.
In our view, the above realities provide a strong justification for the current FG’s drive to increase oil and non-oil revenues significantly. However, we believe more needs to be done in terms of clarity and accountability for new borrowings.