Business - Economy
Updated: July 23, 2020

Nigeria's 2021 Budget To Drag Country Into More Debt Problem

By Olalekan Fakoyejo
July 23, 2020
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Nigeria's debt problem is about to rise even higher as President Muhammadu Buhari-led administration plans to borrow N4.28 trillion in 2021 to fund its budget deficit. The government's plan to borrow N4.28 trillion comes at a period the country's debt service to revenue ratio is over 90 percent.

The 2021 budget is N12.66 trillion, making the budget deficit N5.16 trillion higher than the N4.98 trillion in the revised 2020 budget. According to the 2021-2023 medium-term expenditure framework (MTEF) and fiscal strategy paper (FSP) submitted to the national assembly, Nigeria will be depending heavily on foreign and domestic loan to fund the 2021 budget.

AllNews gathered that N4.28 trillion will be borrowed from foreign and domestic borrowings, while privatisation proceeds will provide N205.15 billion, and drawdowns on existing project-tied loans will provide N674.11 billion.

The document further stated that “This represents 3.62 percent of estimated GDP, well above the threshold of three percent stipulated in the Fiscal Responsibility Act. Unless we can find new revenue sources, given the limited scope of cost-cutting, it will not be feasible to keep budget deficits within the three percent target set in the Fiscal Responsibility Act 2007.”

Meanwhile, Nigeria's oil benchmark is fixed at $40. FG plans to produce 1.86 million barrels per day, which is pegged at N360 to $1, as inflation is projected to hit 11.95 percent.

Nigeria Play Down Debt Problem

According to the document, there are concerns about debt sustainability in the 2021 budget, as it was projected that debt service to revenue ratio will be 47 percent. It was, however, stated that "it is indicative that the country is faced with a serious revenue problem rather than a classic debt problem,”

It was also added that “Efforts must, therefore, be geared towards tackling the revenue problem so it does not degenerate to a real debt sustainability issue.” But note that, while Nigeria has continued to play down its debt problem, there have been indications that raises concerns regarding Nigeria's debt problem.

Why Nigerians Should Be Worried About Debt Problem

In a previous report by AllNews, in the first quarter of 2020, Nigeria retained N950.56 billion as revenue but spent N943.12 billion on debt servicing. Note that Nigeria's debt service to revenue ratio for Q1 2020 was 99 percent according to the ministry of finance, budget, and national planning.

This means for every N1 Nigeria earn, the government used 99 kobo to pay debt - that's why the International Monetary Fund (IMF) stated that Nigeria will use almost all its revenue to service debt. Within three months, Nigeria's debt level increased by N1.23 trillion between December 2019 and March 2020, according to the National Bureau of Statistics (NBS). According to the NBS, Nigeria's debt profile is now N28.63 trillion, rising from N27.40 trillion in the fourth quarter of last year.

Nigeria Debt Problem Killing Revenue

Despite the huge debt of Nigeria, the government keeps obtaining more loans. The Government under President Muhammadu Buhari continues to pile up Nigeria's debt burden obtaining $750 million loan from the World Bank after the African Development Bank (AfDB) gave Nigeria a loan of €288.5 million.

Nigeria also received $3.4 billion financing assistance from the IMF - all these loans were received this year. Before the $750 million loan was approved by the World Bank, Nigeria had a debt of $10.1 billion owed to the World Bank. Nigeria has a debt of $3.2 billion owed to Beijing-based Export-Import Bank of China, while Eurobonds account for a total $10.86 billion owed by Nigeria - Nigeria’s total public debt is $79.3 billion as at March 31, 2020.