New Telegraph

Analysts: Fuel subsidy’ll increase Nigeria’s debt burden

Citing the continued existence of fuel subsidy as well as the fiscal imbalance (driven by revenue shortfall) reported by the Federal Government for the first half of this year, analysts at United Capital Research have stated  that Nigeria’s debt stock will keep on heading north.

The analysts who made the prediction in a report obtained by New Telegraph, yesterday, noted that data obtained from the Nigerian National Petroleum Corporation (NNPC) indicates that the Federal Government has so far spent about N905 billion on fuel subsidy in 2021.

 

They also pointed out that the report on Nigeria’s Q2’21 Public Debt Stock recently released by the Debt Management Office (DMO) clearly shows that there is a lot of pressure on government to  continue to depend on borrowings.

 

The analysts said: “According to the Debt Management Office (DMO), Nigeria’s total public debt stood at N35.5 trillion in June, 2021.

 

This represents a 7.1 per cent q/q increase compared to N33.1 trillion recorded in Q1-2021. On a y/y basis, total public debt rose by 14.4 per cent compared to N31.0 trillion in Q2-2020.

 

“The external debt from the international debt market increased by 9.9 per cent q/q to N13.7 trillion in Q2-2021 (Q1-2021: N12.5 trillion) while  domestic debt from the local debt market rose by 5.4 per cent q/q to N21.8 trillion from N20.6 trillion in Q1-2021. In the face of dwindling revenue and devaluations in the Nigerian economy, the country’s debt burden continues to rise. “On a broader perspective,

Nigeria’s debt to GDP ratio has risen over the past five years (2015-2020).

 

As at December 2020, the ratio stood at 20.0 per cent, up by 70bps compared to 13.0 per cent as at December 2015. This reiterates the pressure on government to depend on borrowings as economic growth has remained stagnated, even as government continues to borrow to finance its budget.

 

“According to DMO, the Federal Government of Nigeria (FGN) spent N1.5 trillion on debt servicing payments for the first half of the year. In Q1-2021, the country spent N1.0 trillion on both domestic and external debt servicing, while spending a total of N445.5 billion in Q2-2021.”

 

The analysts thus stated: “Looking forward, we see no respite for the FGN and we ascertain that Nigeria debt stock will continue to spike, given the current fiscal imbalance driven by the revenue shortfall reported in H1-2021 (where only 63 per cent of the budget revenue target was achieved).

 

“Also, the continued subsidy programme by NNPC will continue to drive the FGN appetite to seek funding via the debt market to solve its liquidity shortages as recent reports from NNPC showed that the FGN has spent circa N905 billion on fuel subsidy in 2021.”

 

New Telegraph reports that at the July meeting of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC), a member of the Committee, Professor Adeola Adenikinju, called on the Federal Government to urgently develop a framework for scrapping the petroleum subsidy regime.

 

He argued that the subsidy is “no longer sustainable and its retention is difficult to justify under the current economic climate.”

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