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Nigeria Empties Treasury Servicing Debt as Fiscal Woes Worsen -Bloomberg

Nigeria spent nearly all the revenues it earned last year servicing its debts, the World Bank said in a new report.

Debt service as a proportion of government income increased to 96% in 2022 from 83% a year earlier, according to the World Bank. Low revenue and rising interest payments have left Africa’s largest economy with almost no money after paying interest on debt.

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This has led to persistent fiscal deficits that are partly funded with costly central bank loans and a raising public debt stock to gross domestic product ratio of 38%, just below the 40% self-imposed limit set by the government.

“Nigeria is in a more fragile position than before the late 2021 global oil price boom,” the World Bank said.

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The organization said one important step the government can take to ease fiscal pressure is to scrap an expensive gasoline subsidy — which cost 2.3% of GDP in 2022, up from 0.7% the year prior.

Nigeria’s president-elect Bola Tinubu, who will take over from outgoing Muhammadu Buhari on May 29, has pledged to end the subsidy that the Finance Ministry expects to drain $7.2 billion from state finances in the first six months of this year.

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Its removal would boost revenues but also raise the cost of living for Nigerians already dealing with high inflation, which quickened to an almost 18-year high of 22% in March.

Nigeria’s economy is projected to grow by an average of 2.9% per year between 2023 and 2025, only slightly above the population growth rate of 2.4%, according to the World Bank. An additional 13 million Nigerians will fall into poverty between 2019 and 2025 due to the low economic growth, it said. Already, 41% of the country’s estimated 219 million people live in extreme poverty.

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In the absence of a significant boost in oil revenues and tax reforms, the World Bank forecasts that Nigeria’s “fiscal deficit will remain above 5% of GDP” until 2025.

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