Nigeria’s debt-to-income ratio could reach 90% in 2022

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As the country plans to borrow no less than 6 trillion naira to finance the 2022 budget, analysts have said that Nigeria’s debt revenue ratio is expected to drop to 90% in 2022 due to rising debts. election expenses.

Agusto & Co analysts in the January economic bulletin titled “2022 Neutralizing Covid, defined legacy and the claging cymbals of politics” postulated that Nigeria’s debt to income ratio is expected to decline further this year, crossing the 80 mark. % to reach 90%. before the end of the year.

Stating that Nigeria “definitely has a debt sustainability crisis which should lead to new thinking”, the analysts said that “the rhetoric of Nigeria’s fiscal policy managers over the past decade has downplayed the risks associated to a growing budget deficit that was largely financed by borrowing.

“The initial borrowing defense emphasized Nigeria’s benign levels of debt relative to GDP, but with less emphasis on debt service relative to income levels. With a debt to GDP ratio of 30%,

“Nigeria seems to have what really looks like a benign ratio. But with 76% of federal government revenue spent on debt servicing alone in 2021, the country is truly experiencing a debt sustainability crisis that should lead to new thinking.

“In 2022, we estimate the debt-to-income ratio will cross the 80% mark and hover between 85 and 90% as election-induced spending increases. While we recognize initiatives to increase tax revenue, Agusto & Co believes that these efforts will not be sufficient without due consideration of the expenditure element of the balanced budget equation.

“Plans to more than double non-debt recurrent spending to around N6.9 trillion in 2022, from around N3.5 trillion last year, point to a lack of fiscal discipline to limit spending largely funded by We also believe that this administration will not pursue other options for financing the deficit, in particular the disposal of assets in 2022.

“In 2021, the Federal Government estimated revenue projections from privatization at N205 billion, but ended the year without any proceeds from SOE divestments. In 2022, the federal government has budgeted N90 billion from the same source. We don’t think that will materialize either.

The report added that, overall, they estimate a budget deficit of about 6 trillion naira in 2022, which will be financed largely by borrowing domestically at 70% and abroad at 30%.

“COVID-19 has defined the global economy for the past two years, with the pandemic pushing Nigeria into its second recession in just five years. In 2022, we believe that the ability of COVID to effectively cripple the Nigerian economy – as it once did in 2020 – will be limited, though it is yet to remain on the radar of businesses and economic managers nationwide.

“This prognosis implies that COVID will always have the ability to trigger uncertainties that can lead to temporary distortions in economic activities, especially in supply chains and travel plans. Nigerian local supply chain being highly dependent on imports , this risk may worsen if or when this scenario materializes,” he stressed.

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