Experts Fret as Nigeria’s Debt to GDP Ratio Approaches 30%

22 Feb 2012

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Minister of Finance, Mrs  Ngozi Okonjo Iweala

By Eromosele Abiodun

Experts have warned that it is imperative for the Federal Government to closely monitor the country’s current debt position, to ensure that it does not surpass a debt to GDP ratio of 30 per cent.
The warning came as the latest figures released by the Debt Management Office (DMO) revealed that the nation’s public debt stock is approaching the 30 per cent mark.

Available data from the DMO showed that Nigeria’s total debt stock (addition of external and domestic debts) as at December 31, 2011 stood at N6.510 trillion representing an increase of 24.37 per cent from the December 31, 2010 figure of N5.235 trillion.
A breakdown of the debt stock showed that external debt accounted for 13.64 per cent of the total debt stock at N887.95 billion, while domestic debt stock accounted for 86.36 per cent of the total debt stock at N5.623 trillion.

The total public debt stock in the country as at December 2011 is estimated at about 17.50 per cent of the GDP, as against the applicable critical limit of 40 per cent for countries in Nigeria’s economic peer group. This, however, means that Nigeria’s debt portfolio has a wide fiscal sustainability space.

In a report made available to THISDAY, experts at FSDH Securities Limited noted that the country’s economic managers need to ensure that all debt contracted are used to promote economic growth and development via the build-up of infrastructure and provision of employment opportunities.

“Meanwhile, given that the oil price volatility will persist in the foreseeable future, we are of the opinion that the call to diversify the revenue base of the economy to non-oil sources cannot be overstated.

“We think Nigeria has the potential to generate huge revenue and foreign exchange inflows from the non-oil sector if appropriate policies are implemented. This will limit its borrowing needs to finance its operations. In addition, government should make genuine efforts to eliminate all forms of leakages, inherent in its day to day activities.

“FSDH Research reinstates that the direction of public debt would be driven by what happens to the price of oil at the international market. If oil price remains at around $100/b, there may not be need for the FGN to grow its debt portfolio excessively, but may do so if oil price falls sharply.

“We expect oil price to remain high, thus we think public debt will only grow by about 10 per cent in 2012 to about N7.16 trillion. The growth in debt will partly be driven by the current high interest rate that government is paying on its domestic debt. The debt to GDP is expected to be in the region of 17.77 per cent in 2012,” the experts said.

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