The Debt Management Office (DMO) has attributed Nigeria’s increasing debt stock to a combination of factors, including borrowings and the continued issuing of promissory notes by the Federal Government.
The Director-General, DMO, Ms. Patience Oniha, who spoke on the country’s swelling public debt profile on a Channels Television programme, Sunrise Daily, yesterday said several loans had been contracted from multilateral and bilateral sources, while at the same time, the Federal Government keeps issuing promissory notes to settle obligations for which it does not really have the revenue back up.
A promissory note is a legal instrument, in which one party promises in writing to pay a determinate sum to the other, either at a fixed, or determinable future time, or on demand of the payee, under specific terms, pointing out that although borrowing is an accepted form to fund government activities, there should be revenue generated to support such.
She said the N77 trillion debt projections likely to be inherited before the end of the administration, can be surmounted with incentives that need to be put in place to ensure borrowings equal balanced expenditure and sustained revenue.
“There are new borrowings for the budget, states and Federal Government will borrow, ways and means will be approved and all,” she said, adding that Nigeria’s debt stock is N46.25 trillion. It includes the debts of the 36 state governments and the Federal Capital Territory (FCT). The Federal Government is responsible for 84 per cent to 85 per cent of this.
“What triggers debts and why the debt stock keeps growing is because when the debt stock is growing, debt service also grows.
“The debt stock is growing because Nigeria has been running a budget deficit for many decades.’’
Oniha said: “In good and bad times with oil prices, we have borrowed. We have been running budget deficits and those deficits are funded largely by 85 per cent to 95 per cent from borrowing and that is cumulative. These are publicly available data.
“As we borrow each year, it adds up, so the annual budget deficits are a major component. If you look at this year’s budget, the budget size is N21 trillion, borrowing is N10 trillion. The third part – the government has been issuing promissory notes to settle obligations for which it doesn’t really have the revenue. So, that is why the debt stock has been growing,” she stated.
Oniha added that Nigeria has contracted several loans in the past from multilaterals, like the World Bank, the African Development Bank and bilaterals like Germany, India, China, saying disbursements are going on.
However, Oniha said Nigeria’s total debt to Gross Domestic Product (GDP) is lowest in Africa. “Our debt to GDP as at December 2022 was 23 per cent and that is still within the limit the government set for itself and the 55 per cent set by the World Bank and International Monetary Fund (IMF). If we add the ways and means, it increases to about 40 per cent,” she said.
“The challenge is debt service to revenue and Nigeria has 6.7 per cent ratio revenue to GDP,” saying the best way out is to reduce the level of borrowings and improve revenue at all costs.