Nigeria’s debt service-to-revenue ratio dropped to the lowest in four years for the first nine months of 2023, largely on the back of federal government reforms, as indicated by a BusinessDay analysis.
BusinessDay’s analysis of the data from the Budget Office of the Federation reveals that the debt servicing bill in Africa’s biggest economy consumed 66.9 percent (N5.79 trillion) of total revenue of N8.65 trillion in the first nine months. This is lower than the 99.3 percent (N4.23 trillion) recorded in the same period of 2022.
Experts note that the removal of the fuel subsidy and the unification of all segments of the foreign exchange market, which increased government revenue inflows, have also improved the fiscal space. This, in turn, has allowed for more funds to be allocated to capital projects, boosting economic growth.
“Last year was a reversal from previous trends because revenue growth was driven by the removal of the oil subsidy and the unification of the foreign exchange market,” said Adeola Adenikinju, a professor of economics and president of the Nigerian Economic Society.
He added that the government now has more revenue to undertake activities, whether in terms of infrastructure or commitments to contractors and workers.
Damilare Asimiyu, a macroeconomic strategist and head of investment research at Afrinvest West Africa Limited, mentioned that the interest meant to be paid on Ways and Means debt was suspended due to the securitisation of loans from the Central Bank of Nigeria (CBN), providing more funds for the government to increase the capital budget.
“Since President Bola Tinubu announced petrol subsidy removal during his inauguration on May 29, pump prices have tripled to N617, while the value of the naira has plunged following the floating of the currency.”
In June, the CBN merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model. The naira has continued to depreciate against the dollar and other major foreign currencies since then.
The official exchange rate fell from N463.38/$ to N1,348.6/$ as of Monday. At the parallel market, the naira is now pushing above N1,500/$ from 762/$.
“The reforms have had a major impact on revenue, even though they are creating hardship for people. But it has improved the fiscal space, and it is likely to improve more by the time we begin to see the impact of the reforms around tax and independent revenue,” said Muda Yusuf, chief operating officer of the Centre for the Promotion of Private Enterprise.