KPMG warns Nigeria’s debt profile will cause fiscal woes for next administration

By Onome Amuge

Professional services firm, KPMG, has warned that Nigeria’s debt  service to revenue ratio may exceed 100 percent in 2023, and could result in critical debt servicing problems, making it difficult for the  next administration to fund operations and functions.

The firm, In its latest macroeconomic snapshot, stated that unless urgent actions to significantly raise revenue and defined guidelines and frameworks for borrowing are implemented,the country risks sliding into critical debt servicing problems

This is even as the country’s total debt  hit N46.3 trillion by the end of 2022, as published by the Debt Management Office (DMO), as well as the recent senate approval of the securitisation of N22.7 trillion Ways and Means advances provided to the government by the Central Bank of Nigeria (CBN).

Factoring the N8.8 trillion expected new borrowings from both domestic and external means in the 2023 states and federal budgets,KPMG projected that Nigeria’s  total debt stock will stand at about N77.8 trillion by the end of 2023.

“With FGN revenue to GDP ratio of 4.49% as of December 2022, Nigeria’s debt service to revenue ratio may surpass 100% in 2023, which will limit the fiscal space and the government’s ability to pay for its operations and functions, unless urgent measures are taken to build revenue,” KPMG said.

The top consultancy firm, however pointed that urgent measures are unlikely as 2023 is transition year with the outgoing administration winding down and a new one taking over the administrative mantle. This, it explained,  would require time to set up and settle before new policies can be introduced and work.”

KPMG stated further that the new administration might be compelled to borrow even more to run its government and stimulate much needed growth in physical and social capital and to do this, it might need to widen the various legal and self-imposed restraints and buffers relating to deficit financing.

To this end, KPMG advised the government to establish well-thought-out guidelines and frameworks for borrowing, focusing on sustainable debt management and giving investments that produce long-term economic returns top priority.

This, the firm said, would help the government to avoid defaulting on loan terms, which could harm the country’s credit rating and confidence in borrowing money.