The federal government plans to borrow a fresh N6 trillion next year to finance the 2022 budget, thus further increasing the country current debt portfolio.



Out of this, it also hopes to spend almost N4 trillion to service its outstanding debt obligations.



Financial analysts and economists have described the country’s borrowing spree as quite worrisome and a burden for the next generation.

This situation, experts believe, would further put the economy on edge, more so as Nigeria’s debt to revenue ratio is very high at 73 per cent.

According the 2022 Appropriation Bill, the government is looking to spend N3.9 trillion on servicing its debt obligations, both local and external, from the N16 trillion budget.

Over the past five years, the country has spent $5.2 billion to service its external debt, and N8.6 trillion for domestic debt, which analysts say is worrisome,.

The International Monetary Fund (IMF), however, advises countries to reduce debt financing and rely on domestic revenue generation to finance spendings.
Speaking on Nigeria’s high debt servicing, the president, African Development Bank (AfDB), Dr Akinwunmi Adesina, said Nigeria must decisively tackle its debt challenges.

According to him, the issue is not about debt to-GDP ratio, as Nigeria’s debt-to-GDP ratio at 35 per cent is still moderate, an argument the government pushes forward to douse tension over the debt pile-up.

However, the poignant questions are how to service the debt and what that means for resources for domestic investments needed to spur faster economic growth.

“The debt service-to-revenue ratio of Nigeria is high at 73 per cent. Things will improve as oil prices recover, but the situation has revealed the vulnerability of Nigeria’s economy. To have economic resurgence, we need to fix the structure of the economy and address some fundamentals,” Adesina said.

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.

What is needed for sustained growth and economic resurgence, he said, is to remove the structural bottlenecks that limit the productivity and the revenue earning potential of the huge non-oil sectors.

“Here is the lesson: Nigeria should significantly boost productivity and revenues from its non-oil sector with appropriate fiscal and macroeconomic policies,’ Adelina said.

Data show that while the domestic debt servicing amount has been slowly rising, external debt servicing took a leap in 2018 as the federal government stepped up its activities in the Eurobond market. Domestic debt service payments rose from N1.23 trillion in 2016 to N1.48 trillion in 2017, N1.79 trillion in 2018 before dropping to N1.69 trillion in 2019 and rising to N1.85 trillion in 2020.

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.
At the external end of the debt market, the number of Eurobonds which the government had to service rose from three in 2016 to 13 at the end of 2020, as the percentage of Eurobond coupon payments of the total external debt service payment rose from 34 per cent in 2017 to 70 per cent in 2018.

Coupon payments on the Eurobonds rose from $91.26 million in 2016 to $158.76 million in 2017, $1.03 billion in 2018, $787.82 million in 2019 and $840.09 million in 2020. This saw the total amount spent on servicing external obligations rise from $353 million in 2016 to $464 million in 2017, $1.47 billion in 2018, $1.33 billion in 2019 and $1.55 billion in 2020.

The Debt Management Office’s (DMO’s) latest quarterly data shows that the federal government’s external debt service payments amounted to $299 million in the second quarter of 2021, consisting of $157 million and $142 million to market and non-market creditors respectively.

While the amount is four per cent higher than the second quarter payment of 2020, it dropped by 70 per cent compared to what was paid in the first quarter of the year largely because payments to foreign creditors shot up sharply and the maturity of Nigeria’s 6.75 per cent $500 million Eurobond in January.

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.

According to the head of Financial Institutions Ratings at Agusto&Co, Ayokunle Olubunmi, debt servicing is a burden for Nigeria.

“It is like kicking the can down the road because if you look at the utilisation of most of the borrowings, it is for recurrent expenditure, which is not sustainable.

“Also, looking at the funds allocated for projects, you see that the quality of the projects is not top notch. In the short run it may seem as though we can manage but the government is creating a problem for the future. If you look at the debt servicing- to-government revenue ratio in 2020, you realise that it is going beyond 90 per cent.

“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.”



An economist and chief executive of Centre for Promotion of Private Enterprise, and former director-general of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, noted that the rising debt profile of government raises serious sustainability concerns.

Although government tends to argue that the conditions was not a debt problem, but a revenue challenge, “the truth”, he says, “is that debt becomes a problem if the revenue base is not strong enough to service the debt sustainably. It invariably becomes a debt problem.

“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 government.

“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.”

Additionally, he said, emphasis should be on concessionary financing, as opposed to commercial debts which are typically very costly.

According to Yusuf, it is imperative for the country to operate as a true federation as the unitary character of the country is making it difficult to unlock the economic potential of the subnationals and perpetuating the culture of dependence on the federal government.

Noting that there is need for more prudence in the spending of the country, Professor Akpan Ekpo, former director general at the West Africa Institute for Financial and Economic Management (WAIFEM) and chairman of the Foundation for Economic Research and Training, said while the country needs to borrow to finance infrastructure, there is need for more transparency.

“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.

“The revenue comes from oil and it is something that is volatile and we are not sure of, which makes it worrisome. What the government needs to do is to generate more domestic resources than borrowing. The debt that the government is encouraging now, it is not this generation that will pay for it, so we need to be very careful. We need to cut our coat according to our size and limit spending to what we generate. Also, if we keep borrowing, it means the deficit keeps expanding and that is worrisome,” Ekpo said.

On his part, the CEO of Economic Associates, Mr Ayo Teriba said it is actually worrisome that Nigeria’s debt servicing is taking a huge part of the nation’s total revenue.

An economic expert, Tope Fasua, said the situation is an indication that the government authorities are not innovative.

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.

He added that Nigerians are waiting for the day there would be out-of-the-box thinking as far as budget implementation is concerned.

“Where we will be able to see new thinking about revenue expectations of our budgets, we have not got to that point.”

He said that the budget has not gone out of the vicious cycle of crude oil being the main source of revenue for Nigeria, stating that it beats imagination that prices of oil at the international market is a major determinant to the implementation of the budget.

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.

Chairman of President Muhammadu Buhari’s Economic Advisory Council (EAC), Dr. Doyin Salami, had in a recent report stoked worries on the rising indebtedness in his State of the Economy presentation. According to the economist, with debt service-to-revenue ratio at 97.7 per cent (January to May 2021), the country’s public debt profile was unmaintainable.

Salami noted that the country’s debt stock is estimated to hit about N54 trillion when Ways and Means as well as the Asset Management Corporation of Nigeria’s (AMCON) liabilities and projected fiscal deficit for 2021 are put into consideration.

Commenting on the rising debt service figures, lead director of Centre for Social Justice (CSJ), Eze Onyekpere, whose organisation has been in the forefront of the campaign for fiscal discipline and transparency in public affairs, stated that Nigeria’s debt had also been increasing in double digits year-after-year since 2015, with the highest increase recorded between 2015 and 2016.

Noting that the borrowing projections in the 2022-2024 MTEF contradicts the provisions of the Medium Term Debt Strategy (MTDS), 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.

Also commenting on the rising debt of the country, analysts at FBN Quest noted that Nigeria’s external financing burden appears to be manageable.

“Excluding principal repayments, interest and fee payments amounted to $567 million in H1 ’21, implying an annualised average interest rate of 3.4 per cent, compared with 10.7 per cent for domestic loans.

“The low single-digit interest rate reflects the fact that the external debt is skewed in favour of concessional loans from multilateral and bilateral lenders. For instance, based on annual interest and fee payments in H1 ’21, and the average stock of external debt as of end-Dec ’20 and end-Jun 21, we calculate the average borrowing cost from the World Bank Group at 1.3 per cent.

“In comparison, the FGN in September issued $4bn in Eurobonds (7-year $1.25 billion, 12-year $1.5 billion, and 30-year $1.25 billion, yielding 6.125 per cent, 7.375 per cent, and 8.25 per cent respectively). On the back of the Eurobond issue, the annual cost of external debt service is set to rise by $260 million.

“Given the current difficulties with the naira exchange rate, an often-cited criticism against external borrowing is that the naira’s devaluation adds to the debt payment burden.

“While acknowledging the criticism, we also recognise that a well-structured external loan mix skewed toward non-market (concessional) debt may prove to be less onerous than domestic market debt. However, such concessional debt often comes with conditionalities such as the implementation of institutional reforms.”