Data from the Debt Management Office shows that Nigeria currently has a total public debt of about N19 trillion an equivalent of 20% of Nigeria’s GDP. Nigeria’s debt profile has been rising since this government came into power in May 2015. For example, Nigeria’s public debt was just N17.36 trillion as at December 2016 and has increased to N19.1 trillion in just the first 3 months of 2017 alone.
More troubling is the fact that Nigeria’s debt service to revenue ratio, a more significant measure of a country’s debt, is now projected to hit 62% based on last year’s revenue. Nigeria budgeted about N1.8 trillion in its 2017 budget for debt servicing and juxtaposed against a 2016 actual revenue of N2.9 trillion shows a trailing debt service to revenue percentage of 62%. Whilst critics might see the alarms bells from afar, officials of the current government think our current debt level is at a “comfortable margin”.
Nigeria’s Budget and Planning Minister, Udo Udoma who spoke in an interview with journalists at the national secretariat of the All Progressive Congress (APC), explained in “great detail” why he thinks Nigeria’s current debt was within a comfortable margin.
“Every country borrows, the level of borrowing in Nigeria is not excessive too. Currently, our debt is about N19trn which is less than 20 per cent of GDP which is quite moderate, so, we don’t have a debt problem”
What we have is a revenue problem. That is why we are taking steps to increase our revenue. One of the things we are doing is to the amnesty programme in order to get people who have not been paying their taxes.
Right now, our tax collection on GDP is very low. If we can achieve that, you will see that the level of debt is low, “
He went on to compare Nigeria’s debt to GDP with that of other countries
A quick Comparison of debt-to-GDP ratio across countries, South Africa 50%; Venezuela 50% and 49.80%; China 42.90%; India 69.50% shows that Nigeria’s debt-to-GDP ratio is relatively low. The debt-to-GDP in Nigeria as at December 2016 stood at 17.11%. This is far below the critical limit of 40% the FGN has set for the Nigeria economy.
The debt-to-GDP ratio compares what a country owes (Public Debt) to what it produces (GDP). It is designed to help determine if a country has too much debts. That is, it is a metric that measure the country’s ability to pay back its debt.
Whilst the Minister did acknowledge that Nigeria had a revenue problem, which we agree with, he failed that highlight the danger that rising debt service to revenue levels posses to government ability to carry out its statutory responsibilities. He also failed to highlight the spike in lending rates currently fuelled by governments lending spree. For all his mentions about revenue being a challenge, he did not lay out any concrete plans to improve Nigeria’s revenue situation beyond granting of Tax Amnesties, some of which are quite frankly pedestrian.
Nigeria is in desperate need of tax reforms instead of half hearted measures directed at raising tax from the rich who are incidentally their cronies.