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KPMG sees Nigeria heading toward debt default as debt service to revenue hits 100%

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A multinational professional services network, KPMG has warned that Nigeria is heading toward defaulting in its debt service if care is not taken as the country’s debt service to revenue ratio may exceed 100 percent in 2023.

The global firm raised the concerns in its macroeconomic snapshot released on Thursday over Nigeria’s risk of sliding into critical debt servicing problems unless urgent actions were explored to significantly raise revenue.

On 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), KPMG said Nigeria’s debt, which hit N46.3 trillion by the end of 2022, will immediately rise to about N70 trillion.

The firm said with the expected N8.8 trillion in new borrowings from both domestic and external sources in the 2023 state and federal budgets, the total debt stock will likely stand at about N77.8 trillion by the end of 2023.

In 2022, Nigeria’s debt service-to-revenue ratio was 80.6 percent, a figure far above the World Bank’s suggested 22.5 percent for low-income countries like Nigeria.

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“With an FGN revenue to GDP ratio of 4.49 percent as of December 2022, Nigeria’s debt service to revenue ratio may surpass 100 percent 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.

“This is, however, unlikely being a transition year with the outgoing administration winding down and a new one starting, which would require time to set up and settle before new policies can be introduced and work.”

KPMG said the new administration might even 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.

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 avoid defaulting on loan terms, which could harm the country’s credit rating and confidence in borrowing money.

(omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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