The International Monetary Fund has warned that unless the federal government puts in place appropriate measures to improve income in this generation, its entire earnings may be spent servicing debt by 2026.
The Fund disclosed that based on a macro-fiscal stress test that is conducted on Nigeria, interest payments on debts may wipe up the country’s entire earnings in the next four years.
Mr. Ari Aisen the IMF’s Resident Representative for Nigeria, said these while presenting the latest Sub-Saharan Africa Regional Economic Outlook, in Abuja.
According to the reports, the Federal Government is to spend N3.61trn servicing Nigeria’s debt burden in the 2022 fiscal period.
The N3.61trn is to be used to service the nation’s debt and represents about 34 percent of the 2022 projected income of the Federal Government.
Nigeria is experiencing a worsening debt level as the country’s indebtedness is likely to reach N45tn following plans by the Debt Management Office plans to borrow an additional N6.39tn to finance the 2022 budget deficit.
The administration of President Muhammadu Buhari has been under a series of attacks on the country’s rising debt levels.
But despite the fact that Nigeria’s debt to GDP ratio is one of the highest in Sub-Saharan Africa, senior government officials still maintained that the country’s debt profile is still within sustainable limit.
Mrs. Zainab Ahmed, the minister of finance stated that government borrowings are done for capital project performance and that the government has the ability to meet its obligations to creditors.
But speaking in Abuja, Aisien expressed worry that many African countries, including Nigeria risk sliding into critical debt servicing problems unless urgent actions were explored to significantly raise revenue.
“The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue almost 100 percent is projected by 2026 to be taken by debt service.
“So, the fiscal space or the amount of revenues that will be needed, and this without considering any shock is that most of the revenues of the federal government are now in fact 89 percent and it will continue if nothing is done to be taken by debt service.
“It is a reflection of the low revenue of the country. The country needs to mobilize more revenue to be able to have macroeconomic stability. It has become an existential issue for Nigeria.
“The war in Europe is hunger in Sub-Saharan Africa and Africa. So, I think we should pay very close attention to this issue”, Aisien.
He lamented that being an oil exporter, Nigeria was not only unable to take advantage of the current global high oil prices to build reserves, but was also confronted by low earnings due to the subsidy on petroleum products.