At 118.9%, the Economist Intelligence Unit ranks Nigeria’s debt-to-income ratio as the worst in the world
Nigeria has reached another dubious global ranking with its debt service ratio now rated as the highest in the world by the Economist Intelligence Unit (EIU).
The EIU is the research and analysis division of the Economist Group, providing forecasting and advisory services through research and analysis, such as monthly country reports, national economic forecasts on five years, country risk services reports and industry reports.
EIU analysts, in an overall note to investors, said Wednesday that the shockingly high debt-service-to-revenue ratio of 118.9% from January to April was the worst in the world and underscores unsustainable fiscal policy.
The report states, “Debt service payments by the Nigerian Federal Government in the first four months of 2022 totaled N1.9 billion, which was higher than its total revenue of N1.6 billion, according to the medium-term expenditure framework 2023-2025 and the budgetary strategy document. (MTEF/FSP) draft presented by the Minister of Finance, Budget and National Planning, Zainab Ahmed, on 21 July.
“This confirms that Nigeria’s fiscal position is unsustainable, despite high international oil prices. We view both subsidies and tax reform as inevitable over the medium term. Based on this, the EIU said Nigeria’s deficit for 2022 could now exceed 6% of GDP.
Nigeria already has the highest number of out-of-school children in the world and years ago was given the inglorious label of poverty capital of the world due to its growing population of absolute poor.
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He added: “High global oil prices are not translating into government revenue due to an expensive oil subsidy, which the government essentially buys from the national oil company in exchange for revenue from crude sales.
“The main problem is that Nigeria by-produces oil. Production of 1.17 million barrels/day (b/d) in June compares to sustainable capacity of 1.5 mb/d and is kept low by insecurity in oil-producing areas, and theft and vandalism of infrastructure are huge problems. The subsidy is clearly unsustainable, given the debt service to revenue ratio, but will not be stopped until the February 2023 general election.
Markets have been hesitant on Nigeria’s fiscal pressures: Credit default swap spreads have risen steadily since April (as the oil subsidy bill began to soar) and topped 1,000 basis points at the end of July. – a gap not recorded since the depths of the coronavirus pandemic shock in April 2020. Restricted access to the international capital market forces the Nigerian government to borrow domestically at high interest rates.
“At 3.1 trillion naira, the government deficit in January-April was almost double its revenue and stemmed from a shortfall of 50.9% against budget, despite an underspending of 18.3 %.
“The MTEF/FSP draft contains two scenarios for the federal budget estimates for 2023. In a scenario where petrol subsidies – estimated at N6.7 trillion for the whole of 2023 – end in the year as planned, the total expenditure would be N18 trillion, which is 3.9% more than the 2022 budget.
However, in a business as usual scenario without subsidy reform, expenditure is estimated at N17 billion, 1.9% lower than the 2022 budget. austerity in an economy where public spending represents only 6% of GDP.
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