Key highlights:
- DMO reveals Nigeria has one of the lowest government revenue to GDP ratios in Africa.
- They noted that this could be sorted by increasing government tax revenues and harsher punishment for tax evaders.
- Nigeria’s debt service to revenue ratio is reported as 80.7% according to the information contained in the 2023 Budget presentation made by the Minister of Finance.
Nigeria’s Debt Management Office (DMO) stated that Nigeria could close its debt deficit by being deliberate with revenue generation.
They added that despite Nigeria’s position as the largest Gross Domestic Product(GDP) in Africa, FG’s generated revenue to GDP ratio is lower than that of most African countries.
This was disclosed on Wednesday by its Director, Portfolio Management Department of the DMO, Mr Dele Afolabi, in Abuja at the Leadership and Development Policy Dialogue Series (LDPDS) in partnership with African Centre for Leadership, Strategy and Development (Centre LSD) with the theme “Nigerian Debt Sustainability Threat: Issues, implications, Lessons and Solutions for the Next Administration.”
Increase Revenue
Mr Afolabi noted that Nigeria’s revenue did not match the high debt service burden, urging that revenue pays debt because the more you have, the less you have to borrow going forward.
He also noted that as Africa’s largest economy, Nigeria operates a revenue-to-GDP base lower than many African nations, which can be sorted by increasing revenue, he added:
- “The people are not paying the right taxes, we don’t have the right culture of taxation and revenue for the government. So, I think, looking at the next government, the key focus should be on how to grow government revenue.
- “Most people don’t pay taxes, apart from people that receive salaries in the formal sector a lot of people are either not paying tax at all or not paying as they should; so there a lot of leakages in terms of government revenue.
- “If we have the highest GDP in Africa, then we should also have the highest revenue but that is not the situation.’’
Debt Service
The DMO chief also urged Nigeria to reduce its dependence on Crude oil revenues and develop other mineral resources, adding that the FG must also “ block leakages” in its plan to grow revenue and reduce its debt burden.
Afolabi, urged the FG to implement stricter actions against tax defaulters, citing that tax evasion in western nations comes with criminal penalties.
The Executive Director of Centre LSD, Mr Monday Osasah, revealed that according to the Minister of Finance, Nigeria is expected to spend 60 per cent of its total revenue on debt servicing in 2023 and this portended a grave threat to the economy, he added:
- “According to the Nigerian Bureau of Statistics (NBS) in its Nigerian domestic and foreign debt Q3 2022.
- “Nigeria’s debt stock which includes external and domestic debt rose from N42.84 trillion or 103.31 billion dollars in the second quarter of 2022 to N44.06 trillion or 101.91 billion dollars in the third quarter same year.
- “The debt figure comprised the debt stock of the Federal Government, the 36 states and FCT.
- “The burgeoning trend of our debt is worrisome especially when it is now being used for debt servicing rather than for growing and developing our infrastructure .’’
Osasah said that Nigeria’s debt service-to-revenue ratio is put at 83 per cent of quarter 3,2022 and the ratio had been on the rise as Nigeria faced dwindling government revenue while government expenditures have increased.
He urged that FG needs to think and commence advocacy for budgetary reforms, fiscal prudence and revenue innovation for the next government was paramount, citing that without that, it would be difficult for the incoming administration to rescue the country from the weakening debt sustainability trend.
Backstory
Nigeria’s debt service to revenue ratio is reported as 80.7% according to the information contained in the 2023 Budget presentation made by the Minister of Finance, she added a total debt service of N5.2 trillion in the first 11 months of 2022 out of a total revenue of N6.49 trillion.
The debt service to revenue ratio looks at the ability of a country’s revenue to cover its debt service obligations. The ratio has been on the rise recently as Nigeria faced a dwindling in its government revenues while government expenditures have increased.
Revenue challenges: Between 2016 and 2022 the Nigerian government failed to meet its revenue targets due to falling oil prices and rampant oil theft that has decimated the federal resources.
- For example, in 2021 the government targeted revenue of N8.1 trillion but could only generate N6.1 trillion leaving a revenue shortfall of N2 trillion. However, its total debt service incurred for that year was N4.2 trillion.
- In the first 11 months of 2022, it has only generated N6.4 trillion in revenues compared to the prorated target of N7.4 trillion. However, the government has also incurred about N5 trillion in non-debt expenditures.
Nigeria’s government and private sector debt rose to an all-time high of N70 trillion representing a 38% increase year on year, according to data from the central bank of Nigeria for February 2023.