Nigeria’s Debt to Revenue Up to 348% amidst Starvation
Uncertainties loom in Nigeria as high subsidies and debt pressures have remained downside risks to the country’s rating which continue to trend behind an investment grade. Amidst hunger and deprivation, Nigeria’s debt hit 348% of total revenue, according to Fitch Ratings.
Lack of foreign investors’ participation in the economy has resulted in dollar shortage, while the monetary authority has become reactionary – adopting combating regulations rather than being strategic in fighting a subtle currency war.
In particular, rising debt stock and associated interest payments data raise dust on government borrowing policies. While FG claims to be on the side of infrastructure development, realities appear to be far different from fantasies.
“There is no electricity, no good road network. Nigerians are battling with high food prices and naira continues to lose store of value with double-digit high headline inflation at 15.70%, unemployment at 33.3% and worsening insecurities”
At the end of the fiscal year 2021, Nigeria’s debt to revenue printed at 348%, according to the global rating agency, Fitch, saying that increasing non-oil revenue helped the nation’s debt affordability metrics.
Debt Management Office (DMO) recorded N38.005 trillion in total public debt as of year-end 2021 but this excluded Central Bank of Nigeria’s Ways and Means which some investment firms see as backdoor funding for government activities.
The Federal Government (FG) debt to government revenue at 755% is much higher, Fitch Rating said in the latest rating note, saying this form relatively weak B rating accorded to Nigeria.
And, Central Bank of Nigeria (CBN) has continued to fund the government activities with overdrafts that have remained unsecuritised, against its own 2007 Act.
In a report, Fitch Ratings has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating at ‘B’ with a stable outlook.
‘B’ Ratings denote a significantly elevated level of default risk relative to other issuers, making the country highly risky due to speculative credit standing.
According to the rating note, higher oil prices provided an advantage due to a focus on hydrocarbon revenues to drive fiscal performance. Higher global oil prices will drive an improvement in external liquidity and support near-term economic growth, Fitch Ratings noted.
It said these improvements are balanced against high hydrocarbon dependence, which leaves Nigeria vulnerable to negative oil price shocks, and structurally low domestic revenue mobilisation.
The continuation of fuel subsidies will limit upside from higher oil prices on Nigeria’s public finances, it stated.
Fitch forecasts are based on December 2021 oil price assumptions of $70 per barrel in 2022 and $60 per barrel in 2023, but the rating said it has considered alternate oil price scenarios, including oil prices at current levels.
“While substantially higher oil prices could lead to a higher outcome of Fitch’s Sovereign Rating Model, we could deem such a change temporary and reflective of Nigeria’s high exposure to oil prices, which also entail heightened risks of a renewed downcycle”.
The rating note however sported that there is an improvement in the nation’s external liquidity position. Nigeria’s gross international reserves have been bolstered by higher oil export receipts, which will continue in 2022.
“We forecast reserves to increase to $43 billion in 2022, up from $40.5 billion at end-2021. We estimate that the combination of oil exports and remittance inflows helped to bring the current account (CA) into balance in 2021 after a deficit of 4.2% of GDP in 2020.
“Our baseline assumption is for the CA balance to remain broadly unchanged in 2022, but sustained higher oil prices at their present level of $112 per barrel could widen the 2022 current account surplus to 4% of GDP, with upside to Nigeria’s international reserves”.
The positive feelings is however douse by fuel subsidies payment which has continued to weaken Nigeria’s fiscal balance following failure to implement the totality of the Petroleum Industry Act.
In January 2022, the government reversed a plan to phase out the implicit fuel subsidies that support price controls on petroleum.
This has necessitated an adjusted federal government budget for 2022 with a deficit target that is 0.6% of GDP wider than the original target, due to the subsidies – with an additional equal hit to the other levels of government. More at: https://dmarketforces.com/nigerias-debt-to-revenue-rises-to-348-amidst-starvation/
