Nigeria’s Next President to Inherit N77trn Debt – Debt Management Office

The Debt Management Office (DMO) has revealed that President Muhammadu Buhari’s administration will bequeath N77 trillion debt to the next administration, as it borrows more to fund budgets’ deficit.

Director General of the Debt Management Office Patience Oniha, disclosed this on Wednesday in Abuja, while addressing the press during the public presentation and breakdown of the highlights of the 2023 Appropriation Act. This came after the N819.5 billion 2022 Supplementary Budget and the N21.83 trillion 2023 Appropriation Bill were signed into law by Buhari on Tuesday.

The Appropriation Act has an overall deficit of N11.34 trillion for 2023, which represents 5.03 percent of Nigeria’s GDP. The total revenue available to fund the 2023 budget is estimated at N10.49 trillion, according to the Minister of Finance, Budget and National Planning, Zainab Ahmed.

She said the budget deficit would be financed mainly by borrowing. She said the federal government will borrow from domestic sources the sum of N7.04 trillion; foreign sources, N1.76 trillion; multilateral loan drawdowns, N1.77 billion; and privatization proceeds, N206.18 billion

“The gap between the revenue, additional financing and total expenditure, amounting to N553.46 billion is expected to be financed by additional revenue from spectrum fees and tax on the maritime sector,” Ahmed explained.

Earlier, Buhari had written to inform the National Assembly that the federal government will be taking additional N1 trillion from the central bank as part of its Ways and Means loan to fund the budget deficit. This would take the total Ways and Means loan from the CBN to N23 trillion. The federal government said it plans to convert it to a long term (40-year) bond.

But Oniha explained that the move by the federal government to securitize the Ways and Means loans would push the country’s debt profile up to about N77 trillion.

“There are a lot of discussions on the Ways and Means. In addition to the significant cost saving in loan service we would get by securitizing it, there is an element of transparency in the sense that it is now reflected in the public debt stock.

“Once it is passed by the National Assembly, it means we will be seeing that figure included in the public debt. You will see a significant increase in public debt to N77 trillion.

“The other area of the debt stock we are trying to highlight is to say the debt stock is also growing from the issuance of promissory notes, which are not true borrowing as such by the government,” Oniha said.

The Minister of Finance said the Ways and Means is currently running at interest rates averaging 18.5 percent. She however explained that with legislative backing, which will help stretch the repayment window to a 40-year period, the Ways and Means would have its interest rate dropped to about nine percent.

“Currently, the Ways and Means is running interest rates, which today is averaging 18.5 per cent. That’s a very, very harvest, so if this is not affordable, the interest rates accruing again and adding to the Ways and Means anything from N1.8 trillion to N2.2 trillion. So, that will be the consequence.

“I’m sure they will understand. So, once that approval is given, it will benefit from a lower interest cost of nine per cent and will benefit from a stretched initiated plan of 40 years with a three- year moratorium which will provide very significant relief to the federal government,” she said.

However, the minister reiterated that Nigeria does not have a plan to restructure its debt, adding that the country is committed to meeting its domestic and external debt obligations. But she said that Nigeria would continue to utilize appropriate debt management tools to streamline the cost and risk profile in the debt portfolio, including through concessional loans, spreading out of debt maturities to avoid bunching, and re-profiling of the debt maturities by refinancing short-term debt using long-term debt instruments.

Besides revenue shortfalls emanating from non-remittance of funds by revenue-generating agencies, Ahmed reiterated that the federal government lost N6 trillion to various tax incentives and waivers in 2021. To address that, the minister said the federal government would phase out the Integrated Corporate Income Tax, otherwise known as Pioneer Tax Incentives, for industries that had grown in the 2023 Appropriation Act.

Nigeria’s oil revenue has lost its steam to the non-oil sector which accounted for the larger percent of the federal government’s total revenue in 2022. This is believed to have prompted the government to increase attention given to revenue-generating agencies.

Ahmed said there would be tighter enforcement of the performance management framework for Government-Owned Enterprises (GOEs) in order to increase operating surplus/dividend remittances in 2023.

This has become necessary as more than 70 percent of the budget revenue is expected from the non-oil sector.

“Total revenue available to fund the 2023 budget is estimated at N10.49 trillion. This includes the gross revenues of 63 GOEs totaling N3.87 trillion.

“Of this, oil revenue share is projected at N2.29 trillion, non-oil taxes are estimated at N243 trillion, and independent revenues are projected to be N2.62 trillion. Other revenues total N762 billion. In aggregate, 22 percent of projected revenue is expected from oil-related sources, while 78 percent is to be earned from non-oil sources,” Ahmed said.

Nigeria is facing a double tragedy of rising debt amid dwindling revenue. The situation sets her up to a negative debt service-to-revenue ratio. The federal government spent 80.6% of its revenue on debt service in 11 months of 2022, which amounts to N5.24 trillion out of N6.5 trillion, according to Ahmed.

The 80.6 percent debt service-to-revenue ratio, which is far above World Bank’s suggested 22.5 percent for low-income countries like Nigeria, bequeaths a dire economic inheritance to whoever becomes Nigeria’s next president.