Nigeria’s current debt to Gross Domestic Product ratio has risen to 35 per cent. The total debt as at the end of 2020 was $142.72 billion, according to Statistica.
The figure represents an increase of 14.7 per cent over the past five years of the administration of President Muhammadu Buhari.
This translates to the fact that Nigeria’s debt increased by over $62.73 billion during the five years of the current administration. Data from Trading Economics show that in 2015 when Buhari took over the reins of government from former President Goodluck Jonathan, Nigeria’s debt to GDP ratio was 20.3 per cent. It listed the percentage increase of the years as 23.4 per cent in 2016, 35.3 per cent in 2017, 27.6 per cent in 2018, 29.1 per cent in 2019 and 35 per cent in 2020. Generally, government’s debt as a per cent of GDP is used by investors to measure a country’s ability to make future payments on its debt, thus affecting the country’s borrowing costs and government bond yields.
Nigerian government’s 10-year bond yield is currently 10.343 per cent with a maturity date of March 14 2021.
The bond reached a maximum yield of 15.856 per cent (4 December 2018) and a minimum yield of 4.048 per cent (3 November 2020).
The country’s credit rating is B, according to Standard and Poor’s rating agency. This suggests that although the government is able to meet its financial commitments, it may be left highly exposed to adverse economic conditions.
To address its rising debt profile, the Federal Government announced a decision to cut down on borrowing and increase use of sovereign guarantees to fund infrastructural development.
It stated that this was in a bid to reduce the need for raising debts for such projects. Nigeria intends to raise the value of these assurances to five per cent of GDP from 1.5 per cent that it was in 2019.
A report from Bloomberg quoted the Director General of the Debt Management Office, Patience Oniha, as saying that the government wanted to give sovereign guarantees as it could not keep borrowing on the balance sheet.
She pointed out that the Nigerian government was looking at guarantees as a way of cutting down the country’s public debt so that investors would be able to raise funding from banks and institutions based on these guarantees.
Oniha said that the government had started the process of selecting an adviser that will develop a framework to build capacity to identify, review and evaluate projects for sovereign guarantees.
She said: “We are actually asking for an embedded adviser to handhold us through that process because we expect the volum of off-balance-sheet transactions to be significant.’’
Nigeria’s public debt, including Central Bank overdraft, is adjudged to be relatively low compared to its contemporaries. However, the major challenge for the country has always been that of revenue as it spends over a third of its revenue servicing its debt due to very low revenue generation.
The Security and Exchange Commission had, on Thursday, said that the rising debt service was an economic threat to the country just as the Minister for Finance, Budget and National Planning, Zainab Ahmed, had still insisted that the Federal Government would have to borrow to fund the 2021 budget.
Nigeria plans to boost infrastructure investments to stimulate economic growth. According to Moody Investors Service, Nigeria needs at least $3 trillion over the next 30 years to reduce its infrastructure deficit