Nigeria on a borrowing binge


Nigeria’s government has borrowed 473 billion naira to pay salaries as oil revenues decline affecting the cash flow.

Ravi Bhatia, director of sovereign and international finance at Standard and Poor’s (S&P), said, “It is tied to the collapse of the oil price as government relies very heavily for about two thirds of its revenue on oil and with the oil price collapse they found themselves short on revenues.”

This has triggered rating action from S&P. It moved in March from a BB- with a credit watch negative and it was downgraded to a B+.


Bhatia added that the Nigerian government did take action on what is called an Austerity Budget – A national budget which aims to reduce the amount of money that people spend- which was drafted by the previous government and has now been passed.

This budget has slashed capital expenditure “massively”. 

“They are using the scarce resources that they have now to pay recurrent expenditure and salaries,” explained Bhatia.

Although there has been an uptake in the oil price, tough times are still ahead.

“For the first time in many years, Nigeria is likely to run a current account deficit, they typically as an oil exporter used to run current account surpluses.”

Most governments use a combination of borrowing and revenues to finance their fiscal outgoings. This is a fairly normal practice according to Bhatia.

“They’ve tried on the expenditure side to cut significantly but they still have a big government and [state] servants that need to be paid.”

While Nigeria has spoken significantly about increasing “non-oil revenues”, in practice the increase in these alternative revenues has not been massive.

“There is a scope there… when they re-assessed the size of the Nigerian economy, the oil sector had shrunk as a percentage of the GDP and all these other sectors relatively had grown. But typically Nigeria is not good at tapping non-oil revenues.”

The rating of B+ means that there is a “stable outlook” and “they are fairly comfortable”, he said.

Rating decisions are affected by institutional strength, political risk, the external and monetary framework, the fiscal story and the general level of economic growth, as well as GDP per capita.