Analysts: Government’s fiscal structure driving Nigeria’s debt

There may be no solution to Nigeria’s continued reliance on borrowing as well as the country’s rising debt servicing costs anytime soon, unless the country addresses its current fiscal structure of government, analysts at CSL Research have said. The analysts, who stated this in a report obtained by New Telegraph yesterday, also noted that efforts by the Federal Government to bridge the nation’s huge infrastructure deficit had pushed it into relying heavily on a combination of domestic and external borrow-ings to fund capital projects. The analysts said: “Nigeria’s huge infrastructure deficit has been a topical discourse as it is widely believed that poor infrastructure is one of the biggest challenges to the ease of doing business. “Frompoorportinfrastructure, dilapidated transport networks, epileptic power supply, huge housing deficit, Nigeria’s infrastructure gap cannot be overemphasised. According to the IMF, Nigeria’s infrastructure stock of c.25 per centof GDP remains far below the 70 per cent international benchmark.

“In an attempt to bridge the huge infrastructure deficit, the government has relied heavily on a combination of domestic and external borrowings to fund capital projects. According to the data published by the Debt Management Office (DMO), Nigeria’s total debt stock grew by 20.6 per cent y/y and 8.3 per cent q/q to N31.0 trillion ($85.9bn) based on an exchange rate of N361/$1 adopted by the DMO) as at the end of June-2020. “We note that the substantial increase in the public debt stock was due to the devaluation of the official exchange rate from N306/$1 to N361/$1 which affected the external debt component coupled with increased domestic borrowings as government took advantage of the low yield environment. “Over the years, continuous underperformance in revenue targets in the face of rising debt level has pushed the nation’s debt servicing to revenue ratio to levels that significantly undermine the availability of fiscal buffers in mitigating the adverse impacts of macroeconomic shocks.

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