The World Bank warns that Nigeria’s debt servicing cost-to-revenue ratio might approach 160% in five years without broad-based reforms to ‘unfreeze’ the fiscal space.
In a separate report, the global bank stated poor nations eligible to borrow from the International Development Association (IDA) spend over a tenth of their export revenues on long-term public and publicly guaranteed external debts — the largest share since 2000.
The study comes as the Ghanaian government fights to avoid financial default and reestablish economic stability. Existing domestic bonds will be exchanged for four new bonds maturing between 2027 and 2037, Ghana’s finance minister said Sunday.
The West African country relies on the IMF to prevent significant distress as it faces widespread unrest over an unacceptable standard of living crisis.
Ghana, like Nigeria, is experiencing a financial crisis. Nigeria spent 119% of its retained earnings on debt service from January to April. It’s the first time the country’s debt-to-revenue ratio hits or exceeds 100%, signaling a fiscal cliff.
In a veiled appeal months ago, President Muhammadu Buhari asked for debt relief or cancellation at a UNGA in the US.
Zainab Ahmed, minister of finance, budget, and national planning, indicated the country was exploring a debt restructuring proposal, but afterward reversed it.
At a roundtable with journalists in Lagos yesterday, Country Director Shubham Chaudhuri stated the amount of government revenue going to debt payment will rise in the next five years and reach 160% in 2027.
The government says its debt accumulation has been minimal, but revenues haven’t kept pace with spending. World Bank executives agree with the government that “more and better spending” will boost growth.
Chaudhuri told editors that interest payments will reach 80% of revenue by 2027. He said the country had a rare chance to break with the past and alter course.
A business-as-usual culture would maintain the current stagnation and risk “everything falling apart,” he argued, sending the economy into a tailspin.
Chaudhuri cited gasoline subsidy reduction and market-reflective foreign exchange adjustment as low-hanging fruits the government should investigate to free up fiscal space and address historical concerns.
The country director acknowledged short-term disruptions but stressed that reforms are better implemented now than never and that delays will have unpleasant long-term effects.
From February 2020 to October 2022, the World Bank authorized $9.2 billion for Nigeria, the most any country has received so quickly.
So far, the Bank has disbursed N4.56 billion to Nigeria, leaving N9.2 billion unspent. Its $13.99 billion commitment to the country funds 30 projects. 70% of projects are implemented by states.
The World Bank Nigeria Lead Country Economist, Alex Sienaert, identified the present high inflation as one of the country’s most challenging concerns, noting that it is “board-based and structural” and not simply about food and energy.
He worried that October’s 21.09 percent inflation rate could push 5 million more people into poverty. Sienaert maintained that the national debt was minimal but questioned the government’s revenue.
The Federal Government has to spend more and better, as public spending to GDP is only 12%, compared to 30% globally. He urged the country to spend wisely, raise revenues, and build institutions to boost economic growth.
The global bank’s research underscores mounting debt-related dangers for low- and middle-income emerging economies. By 2021, the world’s external debt will surpass $9 trillion, double what it was a decade ago. IDA nations’ external debt nearly tripled to $1 trillion during the same period.
Rising interest rates and sluggish global growth risk tipping many nations into debt crises; 60% of the poorest countries are already at high risk of debt distress, if not in distress.
