Nigeria’s rising debt stock and low revenue-generation : DMO boss calls for solution

Nigeria’s rising debt stock and  low revenue-generation :  DMO boss calls for solution

The Director-General of  Debt Management Office (DMO), Patience Oniha, has said that remedies are needed to handle the country’s poor revenues inflows and the escalating rising  new borrowings.

Oniha made the call  at the interactive session on the 2022-2024 Medium Term Expenditure/Fiscal Strategy Paper (MTEF/FSP) held by the National Assembly’s House Committee on Finance in Abuja.

She noted in her presentation that successive low revenue inflows  in the budget, which  she said is further compounded by less than 100% realization, have reflected in high levels of borrowing in the recent years.

According to her, these borrowings have resulted in a high growth rate in the Debt Stock as well as Debt Service, adding  that the trend is the same in the draft 2022-2024 MTEF.”

What this translates to is that  the nation’s borrowings have resulted in a high growth rate in the Debt Stock as well as Debt Service, which are cause for concern, hence, the urgent need for innovative solutions to reduce debt and increase revenue.

However, Nigerians are asking for more to be done to migrate the growing debt as the current state of the economy makes the country vulnerable to an external stock, especially concerning oil.

The World Bank recently  listed Nigeria among the top 10 countries with high debt risk exposure.

Nigeria is ranked fifth on the list with $11.7billion IDA debt stock, while India led the list with $22billion IDA debt stock, followed by Bangladesh with $18.1billion IDA debt stock, Pakistan with $16.4billion IDA debt stock, and Vietnam with $14.1billion IDA debt stock.

Other countries on the list in order of appearance included Ethiopia with $11.2billion IDA debt stock, Kenya with $10.2billion IDA debt stock, Tanzania with $8.3billion IDA debt stock, Ghana with $5.6billion IDA debt stock, and Uganda with $4.4billion IDA debt stock.

The countries were listed in the financial statement for International Development Association (IDA), a part of World Bank FY21 audited financial statements.

World Bank Group President, David Malpass, said the support to client countries surged to $157billion over the last 15 months to address increased poverty, inequality, and the impacts of COVID-19.

Malpass noted that the unprecedented level of commitments helped countries strengthen health systems, protect the poor and vulnerable, support jobs and businesses, promote economic growth, and lay the foundation for green, resilient and inclusive recovery.

“IDA faces two types of credit risk: country credit risk and counterparty credit risk,” the financial statement read.

It explained that “Country credit risk is the risk of loss due to a country not meeting its contractual obligations; and counterparty credit risk is the risk of loss attributable to a counterparty not honouring its contractual obligations,” the report said.

It added that there was a Single Borrower Limit for IDA, which for FY22, had been set at $45billion (25 per cent of $180.9billion of equity as of June 30, 2021).

The report said it was discovered that Nigeria’s undisbursed balance with the World Bank is about $8.656billion as at June 30, 2021.

Nigeria currently has a total of $589million undisbursed balance, consisting of $500m loans approved but not yet signed and $89m signed loan commitment, according to the financial statement for the International Bank for Reconstruction and Development.

The financial statement for IDA disclosed that Nigeria had a total undisbursed balance of $8.07billion, consisting of $1.462billion loans approved but not yet signed and $6.61billion signed loan commitment.

The financial statement for IBRD disclosed that although certain amount of loans has been agreed “the loans are not effective and disbursements do not start until the borrowers and/or guarantors take certain actions and furnish documents”.

A total of $1billion loans were agreed between Nigeria and the World Bank’s IBRD, of which Nigeria’s outstanding loan is $411million.

For IDA, a total of $19.54billion loans were agreed upon, of which Nigeria’s outstanding loan is $11.47billion.

DMO  in March 2021 said the country owes the World Bank a total of $11.51billion which consists of $11.10billion IDA loans and $410.23million IBRD loans.