According to the International Monetary Fund, by 2022, the Federal Government of Nigeria may spend 93% of the country’s revenue on debt interest payments.
The Fund also predicted that by 2026, 139% of the nation’s revenue would be spent on debt interest payments.
This forecast was included in the IMF’s ‘Nigeria Staff Report for the 2021 Article IV Consultation.’
The Washington-based firm predicted that the interest-to-revenue ratio would steadily rise from 86% in 2021 to 95% in 2050, adding that a high interest-to-revenue ratio puts the country at risk of fiscal distress.
“Although interest payments were only 2% of GDP in 2020, interest payments absorbed approximately 89% of Federal Government revenues,” according to the report.
The FG interest-to-revenue ratio is expected to fall slightly to around 86 percent in 2021 before steadily rising to 139 percent by 2026. A high interest-to-revenue ratio jeopardizes fiscal space and makes current and capital spending heavily reliant on debt financing.”
A table illustration in the report also showed that the interest-to-revenue ratio is expected to rise steadily to 93% in 2022, 96% in 2023, 111% in 2024, and 125% in 2025.
It did, however, state that the ratio is extremely vulnerable to shocks, which could cause the 2026 ratio to range between 247 and 398 percent.
The FG interest payment-to-revenue ratio is extremely sensitive to shocks. Higher interest rates will exacerbate Nigeria’s vulnerabilities by putting the country’s debt service capacity at risk. A real interest rate shock, in particular, would raise the FG interest-to-revenue ratio to around 348 percent by 2026. The Washington-based lender also forecasts a 69.91 percent increase in government spending from N17.24 trillion in 2022 to N29.29 trillion in 2026.
“A standardised combined macroeconomic and fiscal shock would raise the ratio to 398 percent.” Other shocks to real GDP growth, primary balance, and the exchange rate would raise the ratio to between 247 and 273% by 2026, according to the report.
