Olusola Bello
The World Bank has declared that Nigeria’s current debt profile may be considered sustainable for now but is vulnerable and costly.
According to the
According to the bank’s November edition of its Nigeria Development Update, it stated that Nigeria’s debt remains sustainable, albeit vulnerable and costly, especially due to large and growing financing from the Central Bank of Nigeria.
It said while currently the debt stock of 27 percent of the Gross Domestic Product is considered sustainable, any macro-fiscal shock can push debt to unsustainable levels.
“However, the debt to the GDP in Nigeria is rising quickly, and the total stock of debt in absolute value has almost doubled between 2016 and 2020, and without a policy change is expected to reach 40 percent of the GDP by 2025.”
The bank further expressed concerns over the nation’s cost of debt servicing, which according to it, disrupts public investments and critical service delivery spending.
“The cost of debt servicing is also a concern as it is potentially crowding out public investment and critical service delivery spending. Interest costs have been above two percent of the GDP since 2018, reaching 2.4 percent of the GDP in 2019 and then falling to 2.2 percent of the GDP in 2020.
“Cost of debt is high as Federal Government also resorts to overdraft (Ways and Means financing) from the CBN to meet in-year cash shortfalls. At end of 2020, the stock of the CBN Ways and Means financing was estimated at N13.1tn or 8.5 percent of the GDP,” it stated.
It, however, said that the Federal Government was making efforts to negotiate terms with the CBN in order to convert the stock of overdraft financing into a long-term debt instrument, which would lower the cost of debt for the government and enhance fiscal sustainability over the medium