Nigeria’s debt, while now considered sustainable, is susceptible and costly, according to the World Bank. The country’s debt is also at risk of becoming unsustainable in the case of macro-fiscal shocks, according to the Washington-based global banking organization.
The bank stated this in its Nigeria Development Update for November.
“While currently the debt stock of 27 per cent of the Gross Domestic Product is considered sustainable, any macro-fiscal shock can push debt to unsustainable levels”.
“However, the debt to the GDP in Nigeria is rising quickly, and the total stock of debt in absolute value has almost doubled between 2016 and 2020, and without a policy change is expected to reach 40 per cent of the GDP by 2025″.
Furthermore, the bank expressed concern over the nation’s debt servicing costs, which it says disrupt public investments and critical service delivery spending.
“The cost of debt servicing is also a concern as it is potentially crowding out public investment and critical service delivery spending. Interest costs have been above two per cent of the GDP since 2018, reaching 2.4 per cent of the GDP in 2019 and then falling to 2.2 per cent of the GDP in 2020.
“Cost of debt is high as Federal Government also resorts to overdraft (Ways and Means financing) from the CBN to meet in-year cash shortfalls. At end of 2020, the stock of the CBN Ways and Means financing was estimated at N13.1tn or 8.5 per cent of the GDP,” it stated.
The Federal Government, on the other hand, stated that it was working with the CBN to convert the stock of overdraft funding into a long-term debt instrument, which would cut the government’s debt costs and improve fiscal sustainability over the medium to long term.
Economists have expressed alarm about the federal government’s expanding debt profile.
The PUNCH previously reported that the Federal Government planned to increase the size of its public debt stock to N50.22 trillion by 2023, with domestic debt at N28.75 trillion and external debt at N21.47 trillion.
According to forecasts in the National Development Plan 2021-2025, this is the case.
Nigeria’s public debt reached N38 trillion at the end of the third quarter of 2021, according to the Debt Management Office, with the entire debt stock increasing by N2.540 trillion in three months between July and September 2021.
According to the NDP, President Muhammadu Buhari’s (retd.) regime intends to accumulate nearly N12 trillion in debt during the next two years, from 2021 to 2023. The government, on the other hand, plans to reduce total public debt by 2025, according to the plan.
The government plans to have a debt stock of N39.59 trillion in 2021, N46.63 trillion in 2022, N50.22 trillion in 2023, N50.53 trillion in 2024, and N45.96 trillion in 2025, according to a table in the document.