The Budget Office of the Federation has raised concern over Nigeria’s rising debt profile, which has jumped significantly in the past eight years as oil revenue dwindles.
The Director-General of the Budget Office, Ben Akabueze, said Nigeria now has a limited borrowing space due to its poor debt-to-revenue ratio, which will spell trouble for the country if it exceeds its limits.
Akabueze spoke at the 10th National Assembly week-long induction ceremony in Abuja on Wednesday, where he addressed members-elect of the Assembly. He said although Nigeria’s debt-to-GDP ratio remains sound, the nation’s debt-to-revenue ratio is troubling.
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“You may have heard that we have one of the lowest Gross Domestic Products-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 N30tn. 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 the limited resources.
“That can determine how much we can relatively borrow. We now have very limited borrowing space; not because our debt to GDP 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.
“We have limited space to borrow. When you take how much you can generate in terms of revenue and what you can reasonably borrow, that establishes the size of the budget. The next thing would be to pay attention to the government’s priority regarding what project gets what,” he said in his address.
The address was deemed necessary because the National Assembly is saddled with the responsibility of vetting the national budgets as well as other economic bills before they are signed into law. The ninth assembly had graciously approved all the loan requests from President Muhammadu Buhari.
The federal government switched to borrowing to fund its budgets due to the downturn in oil revenue mainly orchestrated by oil theft and drop in price of crude oil. As of December 2022, Nigeria’s total public debt has risen to N46.25 trillion, forcing the country to spend more than 90 percent of its revenue on debt-servicing.
Earlier this year, Minister of Finance, Budget and National Planning, Zainab Ahmed, said the 2023 budget incurred an overall deficit of N11.34 trillion, which represents 5.03 percent of the country’s gross domestic product (GDP).
According to the minister, the budget deficit, which was compounded by fuel subsidy payments, would be financed mainly by borrowings. She said that N7.04 trillion would be sourced from domestic sources, N1.76 trillion from foreign sources, and N1.77 billion from multilateral and bilateral loan drawdowns, while privatization proceeds would provide N206.18 billion.
Against this backdrop, Akabueze said that Nigeria should not be classified as an oil-rich economy, noting that with a population of over 200 million, the country is currently pumping about 1.9 million barrels of oil per day.
“We are not even an oil-rich economy. To classify oil-rich economies, you talk of countries like Saudi Arabia where there are 34 million of them and pump 10 million barrels of crude per day, or Kuwait where there are 3 million of them and pump three million barrels per day,” he said
“So, we are not a rich economy and must resist the temptation that we are an oil-rich economy. Let me make it clear that we are potentially rich countries, but we are not,” he added.