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Research indicates that the total public debt of Nigeria could reach N81.64 trillion this year.
The amount was calculated using data from the Debt Management Office’s 2022 Debt Sustainability Analysis Report.
The debt office claims that the inclusion of an estimated N8.8tn 2023 debt, the government’s Ways and Means debt of over N23tn, and an estimated Promissory Notes issuance of N2.87tn in the debt stock is what caused the increase in total public debt-to-GDP to reach 37.1% in 2023 from 23.4 percent as of September 2022.
Nigeria’s total national debt was N46.25 trillion as of December 2022, which indicates that this year there may be a growth of 76.52 percent.
The DMO issued a warning in the study, stating that the estimated N10 trillion in federal government revenue for 2023 cannot support additional borrowing.
The office claims that the predicted government’s debt service-to-revenue ratio of 73.5% for 2023 is high and poses a risk to the sustainability of the debt. It stated that larger levels of borrowing cannot be supported by the government’s current revenue profile.
The debt office stated that the predicted FGN debt service-to-revenue ratio of 73.5% for 2023 is excessive and a threat to debt sustainability in a report titled “Report of the Annual National Market Access Country (MAC) Debt Sustainability Analysis (DSA)”.
“It indicates that larger amounts of borrowing cannot be supported by the revenue profile. To reach a sustainable FGN debt service-to-revenue ratio, FGN revenue would need to rise from the estimated N10.49 trillion in the 2023 budget to around N15.5 trillion.
According to DMO, in order to raise the country’s tax revenue to GDP ratio from about 7% to that of its peer, the government must pay attention to revenue generation by implementing comprehensive revenue mobilisation initiatives and reforms, including the Strategic Revenue Growth Initiatives and all of its pillars.
As it approaches its 40% self-imposed debt ceiling, the Federal Government won’t be able to borrow much, according to the Debt Management Office.
At 37.1%, the country’s debt stock is within sustainable bounds, according to DMO, but it is getting close to the point when there is limited room for more borrowing. The country’s debt stock was described as “remaining sustainable under these criteria, but the borrowing space has been reduced when compared to Nigeria’s self-imposed debt limit of 40% set in the MTDS, 2020-2023.”
Despite having a borrowing capacity of 2.9% (or nearly N14.66 trillion), the government was advised to exercise caution because of a self-imposed cap of 40%.
It was emphasised that “It is advised that this not be used as a basis for higher level of borrowing as was the case in the 2023 Budget. This is because the Shock Scenario’s result, which is more likely given the conditions, went above the predetermined limit.
To minimise borrowing and the budget deficit, the DMO recommended that the government should encourage the private sector to fund some of the capital projects that are being financed by borrowing through Public-Private Partnership programmes. It was also stated that the privatisation and/or sale of government assets could help the federal government cut back on borrowing.
Promissory notes N3tn
We have learned that the Federal Government is considering issuing promissory notes as the amount of its judgement debt and contractual arrears approaches N3tn.
This information was provided in the Debt Management Office’s 2022 Debt Sustainability Analysis Report.
The sum was taken into account by the debt office when establishing the baseline for its analysis in its Market Access Country-Debt Sustainability Analysis Framework.
According to the report, “The 2022 MAC-DSA exercise employed the Gross Public Debt, that is, the General Government Debt, which consists of the FGN’s domestic and foreign debts as well as the debts of 36 States and the Federal Capital Territory.
The FGN Ways and Means Advances at the CBN in the amount of N22.72 trillion (which has since been approved by the National Assembly) and the additional N1.0 trillion in the 2022 Supplementary Budget, totaling N23.72 trillion, are included in the Baseline’s calculation of the FGN Domestic Debt Stock.
Contractual arrears and judgement debts of roughly N2.87 trillion are also included in the FGN domestic debt under the baseline and might be paid off by the issuing of promissory notes in 2023. The Alternative Scenario took into account the FGN’s contingent liabilities, including Guarantees of N4.58 trillion as of December 2021.
A promissory note is a debt instrument that, according to Investopedia.com, comprises a written commitment by one party (the note’s issuer or maker) to pay another party (the note’s payee) a specific amount of money, either immediately or at a predetermined later date.
Government promissory notes are paid from general revenue and assets of the federation, according to Section 4 of the Government Promissory Notes Act.
The following was part of the statement: “The principal sums and interest represented or secured by any Government Promissory Notes are hereby charged upon and shall be payable out of the General Revenue and Assets of the Federation.”
The PUNCH revealed in April that despite large repayments, the federal government’s promissory note debts increased by 60% in four years.
Promissory notes first showed as N331.27 billion in December 2018 on the DMO’s public debt registry.
It increased to N530.03 billion by December 2022, meaning that the Federal Government accrued N198.76 million in additional promissory debt while paying down redeemable notes during that time.
In 2019, it was N732.62 billion; in 2020, N971.66 billion; and in 2021, N762.54 billion.
Since the majority of them are not interest-bearing notes, the Federal Government must have issued at least N971.66 billion in promissory notes, which was a record high in 2020, and redeemed at least N209.12 billion since that year.
Nigeria’s overall promissory note debt would likely increase to N3.42 trillion if the National Assembly authorises the conversion of the arrearages and judgement debts into promissory notes, breaking the billion-naira mark for the first time since it was implemented in 2018.
In a letter to the National Assembly earlier in May, the former president Muhammadu Buhari requested authorization for the payment of judgement debts of $566.7 million, £98.5 million, and N226.2 billion that the Federal Government owes.
The debt was converted to naira at the official exchange rates of N460.78 for a dollar and N574.3 for a pound, totaling N544 billion.
The plea was made five days before the Buhari administration came to an end.
Buhari stated that the government would make the payment by issuing promissory notes in a letter to the former Speaker of the House of Representatives and the former President of the Senate, respectively, Ahmad Lawan and Femi Gbajabiamila.
The loan request Buhari made to the Federal Government to settle some judgement debts totaling over N543,594,989,247 was not, however, approved by the 9th House of Representatives before it adjourned.
The report on the presidential request was presented by Ahmed Dayyabu, chairman of the House Committee on Aids, Loans, and Debt Management, but the MPs decided that work had not yet been completed on it and deferred consideration of it until the 10th House.
Promissory notes, budget deficits, and ongoing borrowing, according to the Director-General of the DMO, Ms. Patience Oniha, have all contributed to an increase in state debt.
She cited a number of factors, including the fact that “the government has been issuing promissory notes to settle obligations for which it really doesn’t have the revenue or cash.” The debt stock has been increasing because of this.
The DMO additionally stated in its DSA report that Nigeria should concentrate on boosting its revenue as the nation has a constrained borrowing capacity.
According to the report, “the analysis of the results of the 2022 MAC-DSA shows that the Total Public Debt-to-GDP ratio is projected to increase to 37.1 per cent in 2023 relative to 23.4 per cent in September 2022, due to the inclusion of the N8.80tn (New Borrowings) for the year 2023, the FGN Ways and Means at the CBN of over N23tn, and estimated Promissory Notes issuance of N2.
“The country’s debt stock remains sustainable under these criteria, but borrowing space has been reduced when compared to Nigeria’s self-imposed debt limit of 40% set in the 2020-2023 MTDS.” However, due to insufficient revenue, the FGN Debt Service-to-Revenue ratio of 73.5 percent in 2023 exceeds the acceptable threshold of 50 percent, indicating that the Government’s revenue must be greatly increased.
“Under the Alternative Scenario, Nigeria’s total public debt-to-GDP ratio of 45.4% in 2023 exceeds the country’s self-imposed debt limit of 40%, while the FGN debt service-to-revenue ratio also exceeds the recommended threshold of 50%.”
