The Debt Management Office (DMO) says Nigeria’s debt service-to-revenue ratio is projected to rise to 71.7 percent by 2030, exceeding its 50 percent “self-imposed” limit.
The ratio, which stood at 60.6 percent in 2024, is projected
to fall to 44.9 percent in 2025, before rising to 51 percent in 2026, and 57.1
percent in 2027.
The debt service-to-revenue ratio is also expected to climb
to 57.4 percent in 2028 and 67.3 percent in 2029.
Under a shock scenario involving weaker economic conditions,
the office said the debt service burden could rise much further — from 57.4
percent in 2026 to 70.9 percent in 2027, 75.3 percent in 2028, 89.6 percent in
2029 and 97.3 percent by 2030.
The figures are contained in the DMO’s 2024 Debt
Sustainability Analysis (DSA) report, which assesses Nigeria’s ability to meet
its current and future debt obligations amid challenges including inflation,
naira depreciation, weak revenue, and the government’s financing strategy.
The DMO said the rising ratio under the baseline scenario is
attributable to debt service growing faster than government revenue.
“This ratio is high and the fiscal space available to the
Government is limited,” the report said.
“In the Shock Scenario, shortfall in domestic revenue
mobilisation would push further the ratio from 57.4% in 2026 to 97.7% in 2030.
Thus, fiscal space is further reduced and the ratio needs to be brought down.”
The report said the two scenarios point to a threat to debt
sustainability because of the increasing pressure of debt service on government
revenue.
DEBT-TO-GDP RATIO PROJECTED TO FALL
Despite the pressure from debt servicing, the DSA projected
that Nigeria’s total public debt-to-GDP ratio will decline substantially over
the projection period.
Under the baseline scenario, the ratio is projected to fall
from 53.7 percent in 2024 to 36.9 percent in 2025, 33.3 percent in 2026, and
31.3 percent in 2027.
The ratio is then projected to decline further to 29.7
percent in 2028, 28.4 percent in 2029 and 27.3 percent in 2030.
Under the shock scenario, however, the debt-to-GDP ratio
would rise to 39.4 percent in 2026 and 38.7 percent in 2027, before declining
gradually to 34.6 percent by 2030.
The DMO said the projected debt-to-GDP ratios remain below
Nigeria’s recommended 60 percent threshold under the medium-term debt
management strategy (MTDS), 2024-2027, as well as the 70 percent benchmark
under the IMF-World Bank Market Access Country Debt Sustainability Analysis
(MAC-DSA) framework.
The DSA said the baseline projections assume an exchange
rate of N1,500 to the dollar, real GDP growth of 4.8 percent and a primary
balance of 3.8 percent.
Under the shock scenario, the assumptions include a 30
percent depreciation of the naira, a decline in real GDP growth and a 2.3
percent fall in revenue.
According to the report, Nigeria’s debt-to-GDP ratio of
53.72 percent as of December 31, 2024, was below the 70 percent benchmark for
emerging markets under the MAC-DSA framework.
The gross financing needs-to-GDP ratio was also relatively
low at 3.2 percent, compared with the 15 percent MAC-DSA threshold, the office
said.
However, the DMO said the debt service-to-revenue position
remains a major concern.
The report also identified three major debt-related risks:
financing, refinancing, and foreign exchange
(FX) risks.
‘INCREASE REVENUE, REDUCE NEW BORROWINGS, PRIVATISE
GOVERNMENT ASSETS’
To address the pressure, the DMO recommended sustaining
fiscal and macroeconomic reforms, increasing revenue through tax reforms, and
improving public expenditure efficiency.
The debt office also called for a reduction in new borrowing
by using public-private partnerships to finance capital projects and complying
with the Fiscal Responsibility Act and the Central Bank of Nigeria Act
provisions on ways and means advances.
The DMO further recommended the privatisation or sale of
government assets and greater reliance on concessional financing where
available.
The report said fiscal consolidation, tax reforms, improved
spending efficiency, and exchange-rate management would be important in
moderating the debt-to-GDP and debt service-to-revenue ratios.
“Overall, the sustainability of public debt remains
moderate, but highly vulnerable to weak revenue mobilisation, exchange rate
devaluation and global uncertainties,” the DMO said.
The DSA also recommended that the government sustain the
removal of the premium motor spirit
(PMS) subsidy and the adoption of a unified and flexible exchange rate,
saying both measures had helped boost revenue.
The office advised the government to expand the tax base,
improve tax compliance through technology and direct public spending towards
investments capable of increasing revenue and growing the economy.
The report noted that Nigeria’s total debt stood at N133.33
trillion as of December 31, 2024, with market-based debt accounting for 69.06
percent of the total and non-market-based debt accounting for the remaining
30.94 percent.
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