Nigeria’s revenue can’t sustain interest payment on debt – W’Bank
Although Nigeria’s total current debt is relatively low compared to the Gross Domestic Product, the interest rate payment is not sustainable by current revenues, the World Bank has said.
Senior Economist at World Bank office in Nigeria, Yue Man Lee, said this in Abuja on Wednesday on the sideline of the release of the 15th edition of Africa’s Pulse, an analysis of issues shaping the continent’s economic future.
For the interest payment to be sustainable, according to Lee, the country either has to increase its revenues or work towards balancing the debt profile to make way for more foreign debt rather than allow the continued dominance of local debt with high interest rates.
She said, “Nigeria’s debt to GDP ratio is relatively low. What is of concern is the ratio of interest payment to revenue. That is what is concerning. This reflects the fact that there has been a massive drop in revenues because of the drop in oil revenues.
“There are two main strategies to reduce this debt burden. One is to increase the revenues. Here, in order not to be vulnerable to the volatility of the oil sector, the critical thing is to increase the non-oil revenues like the VAT, the income taxes and the excises outside of oil. This is something we have been discussing with the government about.”
area in terms of interest payment is to look at the debt profile. Right now, most of the debt is domestic debt – short term domestic debt – and so, the government has already expressed the strategy to move towards external longer-term debt. You have seen them issuing Eurobonds successfully as part of that strategy.
“The key thing for us in terms of sustainability of the debt profile is raising revenues. That is just the key thing.”
Lee also spoke on the nation’s continuing foreign exchange crisis, saying that further liberalisation could lead to depreciation of the naira, but predicted recovery after a short while.
She stated, “Once it is liberalised, the market will determine the exchange rate. We don’t know exactly what the exchange rate will be. Possibly, it will depreciate further; but then, it may adjust back. These are the forces of demand and supply.
“If the exchange rate depreciates further than what it is at the interbank, there could be some inflationary impact. I think we should bear in mind that rights now, a lot more of large scale transactions are possibly done outside of the official interbank exchange rate.”
The World Bank official added, “If a number of transactions are being carried out using the parallel exchange rate, the prices have already been incorporated into the current selling prices. So, it’s a question of how much of inflation impact.
“The second thing to note is that the government has chosen to manage the inflation impact, namely monetary policy. So, that is why the IMF recommended further flexibility in the exchange rate regime with tightening of the monetary policy.”