Nigeria’s Debt-to-real GDP ratio likely to cross 50% in 2021

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This week, Nigeria’s Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, during her presentation on the proposed 2021 federal budget to members of the House of Representatives in Abuja hinted that Nigeria’s total debt burden (domestic & external) which currently stands at ₦31.009 trillion will be increased to ₦32.51 trillion by year-end, and ₦38.68 trillion by December 2020.

By implication, this suggests that an estimated ₦1.50 trillion will be added to the nation’s debt stock before the end of the year, while a fresh ₦6.17 trillion will be borrowed in 2021 to finance different components of the ₦13.08 trillion budget, owing to the perennial problem of revenue underperformance, buoyed by the negative impact of COVID-19.

Nigeria’s Debt-to-real GDP ratio likely to cross 50% in 2021 Brandspurng1
Sources: NBS, BudgiT, DMO, Budget office, GTI Research

Nigeria’s Debt-to-real GDP ratio likely to cross 50% in 2021

Interestingly, the amount earmarked for borrowing by the minister in 2021 (₦6.17 trillion) now represents an increase of 18.65% (i.e ₦970 billion) when compared to the deficit figure of ₦5.20 trillion presented by the president, Muhammadu Buhari, during the 2021 budget presentation to a joint session of the national assembly barely a month ago.

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Although all the proposition contained in the 2021 budget documents are subject to the approval/review by the national assembly, there are strong indications that Nigeria’s Debt-to-real GDP ratio may cross the 50% mark by 2021, as a result of the faster rate of growth of the nation’s debt profile.

Analysis of Nigeria’s real GDP (nominal GDP less inflation effect) and total debt figures since 2015 show that Nigeria’s Debt-to-real GDP stood at 38% in 2019. This implies that about 38% of all the monetary value of economic activities that took place in Nigeria in 2019 is what will be required to pay off the nation’s total debt if the debts were to be paid as of December 31, 2019.

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With Nigeria economy expected to contract by a minimum of 4% (according to IMF) in 2020 due to the negative impact of the COVID-19 pandemic and low earnings from crude oil sales, we estimate that Nigeria’s real GDP in 2020 will likely settle around ₦69.21 trillion, and this implies that the nation’s Debt-to-real GDP figure will increase to 47% given the debt estimate ₦32.51trn by the end of 2020, as projected by the minister.

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Also, with Nigeria’s GDP estimated to only grow by 1.7% in 2021 (World Bank), we estimate that the real GDP will print around ₦70.39 trillion. Hence, given the projected size of Nigeria’s debt by the end of 2021, this will translates to a Debt-to real GDP ratio of 55% by the end of 2021.

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In addition, Nigeria Debt-to-Actual Revenue (i.e. budgeted revenue that was actually realized) which printed at 5.96:1 (or 596% above revenue) in 2019 is likely to increase to 9.16:1 (or 916%) in 2020 (prorating the ₦1.4 trillion earned as of the end of May 2020 to give ₦3.55 trn), before dropping slightly to 8.72:1 (or 872%) in 2021 assuming actual revenue increased by 25% in 2021 to ₦4.4 trillion.

In all, our analysis revealed that Nigeria is on the brinks of a new debt trap if the nation’s debt continues to grow at the current pace over the next two years
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Nigeria’s Debt-to-real GDP ratio likely to cross 50% in 2021 - Brand SpurNigeria’s Debt-to-real GDP ratio likely to cross 50% in 2021 - Brand Spur

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Nigeria’s Debt-to-real GDP ratio likely to cross 50% in 2021 - Brand SpurNigeria’s Debt-to-real GDP ratio likely to cross 50% in 2021 - Brand Spur

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