Nigeria spent a total of $112.35 million servicing external debt in January 2023, according to data from the Central Bank of Nigeria (CBN).
The CBN Weekly International Payments showed that the amount disbursed for debt servicing in January was 146.17 percent higher than the $45.64 million spent in December 2022.
This occurred as the federal government struggled to boost its revenue base despite its revenue generation efforts.
In 2022, Nigeria spent $2.4 billion to service its external debt, which was a slight increase from the $2.11 billion spent in 2021.
The Federal Government deducted over N78 billion from allocations made to the states for external debt servicing.
This was according to data from the Federation Account Allocation Committee Disbursement Reports published by the National Bureau of Statistics (NBS).
The deductions were made in 2022 from the allocations given to state governments from the Federation Account.
The federation account is currently being managed under a legal framework that allows funds to be shared under three major components: statutory allocation, value-added tax distribution, and the derivation principle.
Lagos State contributed the highest in terms of deductions about N23.61 billion in 2022 for external debt servicing.
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It was followed by Kaduna, with N10.25 billion deducted, and Cross River, with N7.56 billion deducted.
The International Monetary Fund recently said the Federal Government projected to spend 82 percent of its revenue on interest payments in 2023.
According to the IMF, external debt (including that of the private sector) will rise to $121.6 billion, with external reserves climbing to $37.5 billion.
The federation account is currently being managed under a legal framework that allows funds to be shared under three major components: statutory allocation, value-added tax distribution, and the derivation principle.
On Wednesday, the Director General of the Budget Office, Ben Akabueze issued a red alert on the state of the country’s debt profile, saying Nigeria now has “limited borrowing space” due to its poor debt-to-revenue ratio and stressed that “trouble” looms for the country if it exceeds its limits.
Akabueze warning is coming on the heel of the request for approval for a $800 million World Bank loan by President Muhammadu Buhari to the Senate on Wednesday.
He pointed out that while Nigeria remains healthy with its debt-to-GDP ratio, the country is not with its debt-to-revenue ratio.
“You may have heard that we have one of the lowest gross domestic product-to-debt ratios in the world. While the size of the FG budget for 2023 created some excitement, the aggregate budget of all the governments in the country amounted to about N30 trillion. That is less than 15 percent in terms of ratio to GDP.
“Even on the African continent, the ratio of spending is about 20 percent. South Africa is about 30 percent; Morocco is about 40 percent. And at 15 percent, that is too small for our needs. That is why there is fierce competition for limited resources.
“That can determine how much we can reasonably borrow. We now have very limited borrowing space, not because our debt-to-GDP ratio is high but because our revenue is too small to sustain the size of our debt. That explains our high debt service ratio. Once a country’s debt service ratio exceeds 30 percent, that country is in trouble, and we are pushing towards 100 percent, and that tells you how much trouble we are in.
(omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)
