Nigeria’s high Debt Service-to-Revenue Ratio, according to the Debt Management Office (DMO), is due to the failure to create more revenue at a time when the federal government is diversifying its revenue sources.
The DMO made this known yesterday, in reaction to a report by the Lagos Chamber of Commerce and Industry (LCCI) claiming that Nigeria’s existing Debt-to-GDP benchmark is an unreliable means of calibrating Nigeria’s present debt burden.
Due to poor revenue and constant borrowing, experts have cautioned the federal government that it may have to borrow to cover its debt. In violation of the advise, the administration has announced plans for increased borrowing.
Responding, DMO said: “The government is largely dependent on the sale of crude oil, as a major revenue source. If Nigeria, with a Revenue-to-GDP Ratio of 9%, generated revenues close to countries such as Kenya, Ghana, and Angola with Revenue-to GDP Ratios of 16.6%, 12.5%, and 20.9% respectively, then, its Debt Service-to Revenue would be lower.”
It also said the countries referred to have higher Public Debt-to-GDP ratios (Kenya: 67.6%, Ghana: 78.9%, and Angola: 136.5%) compared to Nigeria (22.80%) yet record relatively lower Debt Service to Revenue ratios due to their higher Revenue-to-GDP ratios.
“Infrastructure development, job creation, and economic growth, in the face of relatively low revenues, require the government to borrow, at least in the short term,” said the agency.
According to the report, the government is already diversifying revenue production options due to the poor revenue base.
The government has also engaged the private sector for infrastructure development, according to the DMO, in order to reduce direct borrowing through initiatives such as the Infrastructure for Tax Credit Scheme, the new Infrastructure Corporation of Nigeria Limited, and other Public-Private Partnership (PPP) arrangements.