Agusto & Co: Debt to Revenue Ratio Will Cross 80% Mark in 2022

Nume Ekeghe
Analysts have predicted that Nigeria’s debt to revenue will dip further and may cross 80 per cent mark and could depress further to 90 per cent in 2022 as a result of heightened electioneering spending ramps up.

This was highlighted in Agusto & Co. January economic newsletter titled, “Neutralising Covid-19, Defining Legacy and the Clanging Cymbals of Politics in 2022.”
Agusto & Co. stated that the country genuinely has a debt sustainability crisis that should lead to new thinking.

“The rhetoric of Nigeria’s fiscal policy managers over the last decade has been one that downplays the risks around a widening fiscal deficit that has been largely funded by borrowings. Initial defence of the borrowings harped on Nigeria’s benign Debt to GDP levels albeit with less focus on debt service to revenue levels. At Debt to GDP ratio of 30%, Nigeria seems to have what genuinely looks like a benign ratio. But with 76% of the Federal Government’s revenue going into debt service alone in2021, the country genuinely has a debt sustainability crisis that should lead to new thinking.”

“In 2022, we estimate that the debt to revenue ratio will cross the 80% mark and hover between 85% – 90% as election induced spending ramps up. While we do recognise the initiatives to grow fiscal revenues, Agusto & Co is of the opinion that these efforts will not be enough without due consideration to the expenditure element of the fiscal balance equation. “

“Plans to more than double the non-debt recurrent expenditure to about N6.9 trillion in 2022 from about N3.5 trillion last year, indicates an absence of fiscal discipline to rein spending largely financed by borrowings. We also believe that this administration will not pursue other deficit financing options particularly disposal of assets in 2022. In 2021, the federal government estimated revenue projections from privatisation at N205 billion but ended the year without any proceeds from divestments of state- owned enterprises. In 2022, the federal government has budgeted N90 billion from the same source. We believe this will also not materialise.”

It added that overall, they estimate a budget deficit of about N6 trillion in 2022 that will be funded largely by domestic 70 per cent and foreign borrowings 30 per cent.
Furthermore, it added: “COVID-19 has defined the global economy over the last two years with the pandemic pushing Nigeria into its second recession in just five years. In 2022, we believe that COVID’s capacity to effectively paralyse the Nigerian economy – like it once did in 2020 will be limited, albeit it still has to remain on the radar of businesses and the country’s economic managers. This prognosis implies that COVID will still possess the capacity to trigger uncertainties that can lead to temporary distortions in economic activities particularly in supply chains and travel plans. With the Nigerian local supply chain strongly dependent on imports, this risk can become embellished if or when this scenario materialises.

“Businesses that will win in 2022 will have to critically plan on how to navigate the unorthodox. Nigerian FX markets and the country’s high inflationary environment. These twin factors will provide some of the most elevated risks in the business environment. The insecurity in flashpoints will also have some negative effects on local supply chains. Thus, businesses will have to forge ways to navigate these issues.”