IMF  warns debt servicing may take all of Nigeria’s revenue by 2026

The Nigerian government may spend nearly 100 per cent of its revenue on debt servicing by 2026, the International Monetary Fund (IMF) has warned.

The Bretton Wood institution raised concerns over Nigeria’s fiscal conditions, adding the nation spends 89 per cent of its revenue on debt.

The IMF’s Resident Representative for Nigeria, Ari Aisen, disclosed this while presenting the Sub-Saharan Africa Regional Economic Outlook report on Monday, 30th May 2022 in Abuja.

According to him, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts may wipe up the country’s entire earnings in the next four years.

Early this year, it was disclosed that the Federal Government (FG) spent N4.2tn on debt servicing between January and November 2021, which represents 76.2 per cent of the N5.51tn revenue generated during the period in question.

The FG reportedly plans to spend N3.61tn on servicing Nigeria’s debt burden in the 2022 fiscal period, which represents about 34 per cent of the 2022 projected revenue of the country.

Nigeria’s debt stock, which is about N39.56tn as of December 2021, is likely to reach N45.95tn following plans by the Debt Management Office (DMO) to borrow an additional N6.39tn to finance the 2022 budget deficit.

Speaking in Abuja, Aisen expressed worry that many African countries, including Nigeria, risked sliding into a critical debt servicing problem unless urgent actions were explored to significantly raise revenue.

Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue almost 100 per cent is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this without considering any shock is that most of the revenues of the federal government are now, in fact, 89 per cent and it will continue if nothing is done, to be taken by debt service.

“It is a reflection of the low revenue of the country. The country needs to mobilize more revenue to be able to have macroeconomic stability. It has become an existential issue for Nigeria.”

He further lamented that being an oil exporter, Nigeria was unable to take advantage of the current global high oil prices to build reserves due to the subsidy on petroleum products.

According to him, Nigeria’s subsidy bill would likely hit N6tn by the end of this year at the current monthly subsidy bill of N500bn.

Aisen, however, expressed optimism that the Dangote Refinery would reduce fuel importation when completed, in order to reduce the subsidy burden.

He further warned that soaring food prices and next year’s general elections were threats to the country’s economy.

Aisen said “persisting insecurity, particularly banditry and kidnapping, and the forthcoming 2023 elections may affect the performance of the economy”.

The IMF Rep explained that Nigeria received $3.4bn in Special Drawing Rights and an equal amount in addition to a loan from the Fund, bringing the total loan since 2020 to $6.8bn.

In his remarks, the Director-General of the Budget Office, Ben Akabueze, disagreed with Aisen on his debt service-to-revenue figures, but agreed that Nigeria was spending a significantly high amount on debt servicing.

It’s only a-day old child that would be unaware that Nigeria’s debt profile is rising astronomically on a daily basis, yet no tangible revenue growth to cushion its excruciating effects. This portrays a serious danger to the country, even to a layman’s understanding.

It’s very worrisome that actualizing a surplus budget has become a far-fetched goal in Nigeria’s fiscal system. It suffices to assert that deficit budgets has abruptly and unwittingly emerged as tradition in the country.