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OUTLOOK 2021: Nigeria’s debt stock and debt-servicing to revenue ratio to remain elevated-LCCI

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Debt stock as of end-Q2 2020 is equivalent to 21% of GDP

MON, 28 DEC, 2020-theGBJournal- The Lagos Chamber of Commerce and Industry (LCCI) expects Nigeria’s debt stock and debt-servicing to revenue ratio to remain elevated in subsequent quarters-well into 2021.

‘’The five percent devaluation in official FX rate from N361/$ to N379/$ enforced in July 2020 and new credit facility from the World Bank will expand the external component of the country’s debt portfolio,’’ the LCCI said in a note to theGBJournal.

According to the Chamber, the low yield environment is expected to keep domestic borrowings elevated in the short-term as it favours Federal Government in mobilizing funds at lower rates. Putting all these into consideration, we see total debt stock within the range of N33 trillion and N34 trillion by end-year 2020, slightly higher than Federal Government’s expectation of N32 trillion by end-year 2020.

‘’Looking forward, a resurgence of covid-19 pandemic in year 2021 may propel the Federal Government to take on more (concessionary) borrowings to fulfil fiscal obligations. Additionally, a potential FX adjustment in a bid to ease pressure on the local currency (naira)might possibly expand Nigeria’s external debt portfolio and total debt stock in year 2021.’’

With nominal GDP at about N145 trillion by end-2019, the country’s debt stock as of end-Q2 2020 is equivalent to 21% of GDP. Similarly, the Federal Government paid N416.4 billion in interest payment on outstanding debt in Q2-2020, of which N312.8 billion and N103.6 billion ($287 million at N361/$) went into domestic and external debt servicing, respectively.

Meanwhile, the budget implementation report published by the Budget Office showed that Federal Government expended N2.14 trillion on debt servicing between January and August 2020, which is 8.6% higher than the prorated sum (N1.97 trillion). With actual revenue settling at N2.52 trillion between January and August 2020, it implies that the Federal Government expended 85% of revenue generated in the first eight months of 2020 on servicing debt, an indication that the country’s debt stock is increasingly becoming unsustainable.

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