The Federal Government of Nigeria’s plan to borrow $5.5 billion through Eurobonds will raise the country’s debt service to revenue cost beyond 62 per cent, Sub-Saharan Africa Economist at Renaissance Capital (RenCap) Yvonne Mhango has predicted.
The investment and research firm analyst said the debt service/revenue stood at 29 per cent in 2014 fiscal year, even as plans to raise additional fund in the near term imply debt service costs will rise further, albeit at a slower rate.In a report released to investors yesterday, titled: Nigeria: Fiscal operations in Seven-month – Capital Expenditure-Light and Debt Service-heavy, she said capital releases for the 2016 budget continued into the first quarter of this year, while public debt has increased by seven percentage points of Gross Domestic Product (GDP) since 2014.
On the debt service/revenue, she said: “Nigeria’s debt service/revenue has risen sharply in recent years to 62 per cent as at June 2017, against 29 per cent level in 2014. This largely reflects the Federal Government’s low revenue/GDP target of four per cent this year. The Federal Government plans a $5.5 billion Eurobond issuance before year-end, 2017 as part of its efforts to lower local interest rates, by reducing domestic debt/total public debt to 60 per cent, against the over 70 per cent today”.
Mhango said budget performance in the first seven months of this year and debt developments showed there were no capital releases for the 2017 budget, because it was passed late. She said the Federal Government’s 2017 budget of N7.4 trillion was 6.2 per cent of GDP, and was signed by the executive, after being passed by the Senate in May.
Of this, N3.1 trillion (2.5 per cent of GDP) was spent in seven months. “Expenditure in seven month was 30 per cent below the (pro-rata) target and was entirely made up of recurrent spending. There were no capital releases from the budget because of its late approval.” she said.
Mhango said revenue came in on target, at N2.6 trillion (2.1 per cent of GDP) because of a one-off refund from the Paris Club. “When this is stripped out, there was a 20 per cent shortfall in revenue. Below-target spending – due to delayed capital releases – explains the small budget deficit for seven month of 0.8 per cent of GDP, by our estimate, as against the 1.5 per cent (pro-rata) target,” she said.
She disclosed that the federation account revenue was one-third below target, and that three-quarters of the FGN’s planned revenue for this year is expected to come from the Federation Account, of which two-thirds will stem from oil revenue.