The International Monetary Fund (IMF) has warned that debt servicing may gulp 100per cent of the Federal Government’s revenue by 2026, if the government fails to implement adequate measures to improve revenue generation.
The IMF’s Resident Representative for Nigeria, Ari Aisen, disclosed this while presenting the Sub-Saharan Africa Regional Economic Outlook report 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 spent N4.2trillion on debt servicing between January and November, 2021, which represents 76.2per cent of the N5.51trillion revenue generated during the period.
The Federal Government plans to spend N3.61trillion on servicing Nigeria’s debt burden in the 2022 fiscal period, which represents about 34per cent of the 2022 projected revenue of the Federal Government.
Nigeria’s debt stock, which is about N39.56trillion as of December, 2021, is likely to reach N45.95trillion following plans by the Debt Management Office (DMO) to borrow an additional N6.39trillion to finance the 2022 budget deficit.
Speaking in Abuja, Aisen expressed worry that many African countries, including Nigeria, risk 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 100per 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, 89per 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 mobilise 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 not only 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 N6trillion by the end of this year at the current monthly subsidy bill of N500billion.
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 election are threats to the country’s economy.
Aisen said “persisting insecurity – particularly banditry and kidnapping – and the forthcoming 2023 elections that may affect the performance of the economy”.
The IMF Rep explained that Nigeria received $3.4billion in Special Drawing Rights and an equal amount in addition to a loan from the Fund, bringing the total loan since 2020 to $6.8billion.
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 is spending a significantly high amount on debt servicing.