Based on debt sustainability analyses, Nigeria and ten other Economic Community of West African States countries are currently in debt distress, according to a new research by the Nigerian Economic Summit Group and the Open Society Initiative for West Africa.
Benin, Burkina Faso, Cabo Verde, Gambia, Ghana, Guinea Bissau, Liberia, Niger, Senegal, and Togo are the other ten countries.
The paper, titled ‘Debt Management, Restriction, and Sustainability in ECOWAS,’ was just released at the Debt Management Office in Abuja.
According to the research, a financial crisis in Nigeria might endanger other ECOWAS members.
“According to the debt sustainability analysis, 11 ECOWAS countries are currently in debt distress – Benin, Burkina Faso, Cabo Verde, Gambia, Ghana, Guinea Bissau, Liberia, Niger, Nigeria, Senegal, and Togo.” The remaining four countries — Côte d’Ivoire, Guinea, Mali, and Sierra Leone – are not in danger of defaulting on their debts.
“We also discovered that a financial disaster caused by a debt problem in one country has the potential to spread throughout the region.” Nigeria’s financial problems, in particular, pose a severe threat to other countries in the region.”
The research also stated that the region’s public debt buildup is unsustainable, emphasizing the need to address and avert the approaching debt crisis.
“As it is clear that ECOWAS’ public debt buildup has reached an unsustainable level, governments must act quickly to avoid approaching debt trouble.” This is critical for ECOWAS countries to avoid a lost decade of financial crises, in which debt settlement will be the government’s primary priority for years,” it added.
The research also emphasized the region’s high debt service to revenue ratio, particularly in Nigeria.
“Beyond the debt data, the IMF has established criteria for various indicators of debt sustainability position (Debt to GDP, External Debt to GDP, Debt Service to Revenue, and a host of other ratios),” the paper stated.
Many governments, on the other hand, have made debt sustainability judgments based on debt indices that allow for increased borrowing. However, debt management in ECOWAS has been hampered by a high debt service to revenue ratio — close to 100% in some cases. This is especially concerning for Nigeria, which had a debt service to revenue ratio of 97 percent in the first five months of 2021.”
According to the analysis, the likelihood of a debt crisis in Nigeria would have a negative impact on public and private investments, as well as the entire region.
“The scenario in some ECOWAS nations, such as Nigeria, where debt servicing to revenue is close to or exceeds 100% portends a debt cycle of borrowing to service debt and risks a potential debt catastrophe,” it continued. The likelihood of a debt crisis in some of the region’s countries, particularly Nigeria, will have negative consequences for public and private investment, foreign investment inflows, aggregate demand, and macroeconomic stability. Because of the rising economic interdependence among ECOWAS countries and the importance of Nigeria in the region’s economic structure, the consequences of a debt crisis in Nigeria could destabilize other ECOWAS countries.”
According to the DMO, Nigeria’s total public debt stock climbed to N39.56 trillion in 2021 from N32.92 trillion in 2020.
In 2021, the country borrowed around N6.64 trillion and spent about N2.93 trillion on debt servicing payments.
