By Adedapo Adesanya
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, has said Nigeria’s debt service to revenue ratio is currently 80.7 per cent.
She disclosed this during her presentation of the breakdown of the 2023 budget in Abuja on Wednesday, revealing further that the country spent N5.2 trillion for debt service in the first 11 months of 2022 out of a total revenue of N6.49 trillion.
The debt service to revenue ratio looks at the ability of a country’s revenue to cover its debt service obligations. The ratio has been on the rise in recent years as Nigeria faced dwindling revenues while government expenditures have increased.
The Nigerian government failed to meet its revenue targets due to falling oil prices and rampant oil theft that has decimated federal resources.
For example, in 2021, the government targeted revenue of N8.1 trillion but was only able to generate N6.1 trillion, leaving a revenue shortfall of N2 trillion. However, its total debt service incurred for that year was N4.2 trillion.
In the first 11 months of 2022, it only generated N6.4 trillion in revenues compared to the prorated target of N7.4 trillion. However, the government has also incurred about N5 trillion in non-debt expenditures.
Nigeria’s total public debt is estimated at about N67.6 trillion as of September 2022, representing just 35.2 per cent of the gross domestic product (GDP).
While the government continues to cite the debt-to-GDP ratio as being low when compared to other emerging markets, the debt service-to-revenue ratio has constantly breached what acceptable standards are.
To reduce the debt service to revenue ratio, the government will need to increase its revenues, especially via taxes.
Recently, the International Monetary Fund (IMF) called on the government to increase the current Value Added Tax (VAT) from 7.5 per cent to 15 per cent.
Tax revenue collected in 2021 was N1.79 trillion surpassing the N1.48 trillion budgeted. It is also expected to surpass the 2022 budget.
Modupe Gbadeyanka