Nigeria’s debt portfolio hits 33.1 trillion naira in Q1

Nigeria's total debt portfolio has surged to a record high of 33.1 trillion naira in the first quarter of the year, with external debt accounting for 37.67% and domestic debt at 62.33%. Fitch Ratings is projecting Nigeria's debt-to-revenue ratio to hit a staggering 395% by 2022, raising concerns about the sustainability of the country's borrowing. The country is grappling with severe revenue deficits, leading to a cycle of borrowing to fund its fiscal activities. In 2020 alone, the government borrowed over 5 trillion naira, exacerbating the already high debt burden. Without a significant shift in fiscal policy and revenue generation, this trend is expected to continue, further straining the economy. Johnson Chukwu, the Managing Director and CEO of Cowry Asset Management, highlights the urgency for the government to address the escalating debt levels and revenue challenges. Chukwu emphasizes the need to restructure the government bureaucracy to reduce overhead costs, enhance revenue generation by eliminating non-essential expenses like fuel subsidies, and explore public-private partnerships for infrastructure investments. The looming crisis in the petroleum sector is evident in the 60% increase in the landing cost of Premium Motor Spirit (PMS) since December 2020, reaching 231.98 naira per litre by mid-June this year. The mounting subsidy burden poses a significant challenge to the economy, with projections indicating that the government would need about 2 trillion naira to sustain the subsidies in 2021. This accounts for half of the federal government's revenue from last year, underscoring the unsustainability of the current subsidy model. Chukwu stresses the urgency of addressing the subsidy issue to redirect resources towards critical investments in infrastructure and social sectors. The prevalence of smuggling of petroleum products out of Nigeria further complicates the subsidy dilemma, as the price disparity incentivizes illegal trading activities. Chukwu recommends aligning fuel prices with international market rates to deter smuggling and improve the economic viability of the sector. The resurgence of activities by militant groups like the Niger Delta Avengers poses additional risks to the oil industry, with potential disruptions threatening government revenues. Chukwu warns against escalating conflicts in the Niger Delta region, highlighting the importance of maintaining stability for oil production and revenue generation amidst challenging fiscal conditions. The precarious balance between addressing debt sustainability, subsidy reform, and security threats underscores the critical decisions that Nigeria must undertake to steer its economy towards a more stable and prosperous future.