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Nigeria’s total debt profile increased to N31.009 trillion ($85.897bn) as of June 30, 2020, according to the
Debt Management Office (DMO).
Nigeria is digging itself deeper into a financial crisis that only a fundamental
policy reset can salvage, the International Monetary Fund (IMF) said
Monday.
Nigeria spent N92 of every N100 earned in 2020 servicing its fast-growing
debt stock, according to IMF estimates. That is the highest in five years, and is
up from 52.6 percent in 2019 and 60 percent in 2018.
Although the IMF expects the government to spend less of its revenue on
debt servicing in 2021 at N60 for each N100 earned, Nigeria will remain in a
precarious situation if a needless petrol subsidy bill joins an over bloated
workers’ wage bill and critical capital expenditure to jostle for the N40 that is
left.
Breaking away from the past would entail ditching consumption subsidies
that have long held back the economy, like the petrol subsidy.
It also means a break away from the raft of protectionist policies that have
done the economy more harm than good.
But these protectionist measures are yet to deliver a job-rich growth as the
economy remains heavily dependent on the oil sector, through direct and
indirect exposures, and vulnerable to periodic commodity shocks.
Nigeria slipped into its worst recession in over three decades last year and
now faces a record sixth straight year of declining average incomes with
most forecasts pointing at less than 2 percent growth in 2021. Unemployment
hit a record 27 percent as at the second quarter of 2020, with economists
forecasting the rate to rise further to 30 percent on the back of pandemic-
induced job losses.
A large number of countries around the world have been battered by the
global pandemic, experiencing output contractions and job losses.
However, what set Nigeria apart are its weak pre-crisis fundamentals that
threaten to turn a temporary crisis into a slump with more lasting
consequences for employment and living standards.
Even as the economy is stuck in a low growth cycle, Nigeria’s level of public
debt has continued to increase, an indication that the government has not
spent the debt on economic stimulating activities.
Public debt, which includes general government debt, CBN overdrafts, CBN
financing of the power sector, Asset Management Company (AMCON) debt,
and non-interest-bearing promissory notes issued to clear payment arrears
(about N2.6trn from 2018 through 2022), increased to about 29 percent of
GDP in 2019 from 9 percent in 2009. This was driven by large fiscal deficits
arising from weak non-oil revenue mobilisation and falling oil revenues.
“Now that crude oil price is well above the 2021 budget reference price of
$40 per barrel, this is the time to apply the excess oil revenue to reduce the
budget deficit and level of borrowing,” Uwaleke said.
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