Dipo Olowookere
By Dipo Olowookere
The Debt Management Office (DMO) has disclosed that the debt stock to Gross Domestic Product (GDP) of Nigeria reduced to 18.99 percent as at June 30, 2019 from 19.09 percent as at December 31, 2018.
The agency made this disclosure while rolling out the Medium–Term External Borrowing Plan of the federal government, which is meant to stimulating economic growth, diversify the economy and bring about investments in human capital.
In the plan, the debt office emphasised that the present level of Nigeria’s debt to GDP ratio was very low when compared with many advanced nations like the United States of America (USA).
However, it stressed that where the problem lies for the Africa’s largest economy is its debt service to revenue ratio, which the DMO said was high at 57 percent in 2017 and 51 percent in 2018.
This was attributed to the increase in the debt stock and relatively high domestic interest rates, noting that it was for this reason government has decided to borrow externally through the $30 billion loan is seeks approval for from the National Assembly.
“Nigeria has a ceiling of 25 percent on the total public debt stock to GDP, which it has operated within,” the debt office said in the plan viewed by Business Post, adding that the debt service/revenue ratio “provides strong justification for the current drive to increase oil and non-oil revenues significantly.”
According to the DMO, “The United States of America, United Kingdom and Canada had debt/ GDP ratios of 105 percent, 85 percent and 90 percent in 2017 which were much higher than that of Nigeria, but because they generate adequate revenues, their debt service/revenue for the same year were 12.5 percent, 7.5 percent and 7.5 percent respectively.
“The case was also similar for Brazil, South Africa, Kenya and Mexico who had higher Debt/GDP than Nigeria (74 percent, 53 percent, 57 percent and 46 percent respectively), but had lower debt service/revenue of 32.20 percent, 11.4 percent, 13.2 percent and 13.6 percent respectively.”
“This is clear evidence that Nigeria’s revenues are low. This is further demonstrated by Nigeria’s tax to GDP ratio of only 6 percent in 2018 compared to: Kenya-15.7 percent, Morroco-21.8 percent, Cameroon-12.2 percent and South Africa-27.5 percent, all for 2017. These, attest to the fact that Nigeria has a Revenue challenge rather than a debt problem,” the DMO added.
The debt office threw its weight behind the borrowing plan, saying it would be used to develop infrastructure in the country like roads, railways, waterways and power, which it said “will help to unleash the potentials of the Nigerian economy.”
“Other loans such as those for the educational sector will contribute to the development of Nigeria’s human capital, while loans for agriculture will be used to diversify the economy.
There will also be funding for development finance institutions to enhance access to finance for micro, small and medium scale enterprises,” the debt office further said.
