World Bank doubts Nigeria’s ability to sustain debt

The World Bank has raised doubts over the sustainability of Nigeria’s public debt.

Nigeria’s total public debt, which stood at N21.73tn as of December 31, 2017, rose to N25.7tn as of June 30, 2019, according to data from the Debt Management Office.

The federal government reportedly deployed 54.2 per cent of all its earned revenue to debt service in the first half of 2019.

In the latest Nigeria Economic Update, the World Bank observed that low revenue posed a challenge to Nigeria’s ability to sustain its debt burden.

“The ratio of public debt to GDP is relatively modest at around 20 per cent, but debt sustainability is challenged by low revenues.

“Low domestic revenue raises questions about debt sustainability.

“The interest payments on public debt are high and rising due to growing debt stock and because of high-interest rates in the domestic debt market and the high proportion of domestic debt,” the bank observed.

Government domestic debt constitutes 77 per cent of total domestic debt, which itself is almost 70 per cent of total debt, according to the bank.

The bank noted that efforts to increase domestic revenues and improve expenditure and debt management would help strengthen Nigeria’s fiscal position.

However, the Bretton Woods institution warned that “if domestic revenues do not rise, general government’s fiscal deficit will remain high at over four per cent of the GDP during 2020-21, and rising debt service will eat into the fiscal space needed to build human and physical capital.”

The bank backed the planned hike of Value Added Tax through legislation, describing it as a positive step in tax policy reform.

But it also canvassed the elimination of fuel subsidy, or rationalisation of tax incentives, which it described as ‘bolder measures to mobilise domestic revenue’.

According to the bank, such bolder measures are needed to push revenue above its current level of eight per cent of the GDP.

It added that oil revenues were being undermined by discretionary deductions and by the Central Bank of Nigeria’s below-market exchange rate.