- Revised Budget: Debt Service to Revenue Ratio Rises 40%
Nigeria’s debt service to revenue ratio jumped by 40 percent after the Federal Government revised down the nation’s budget for the year due to the COVID-19 pandemic.
The Federal Government had revised down expected revenue for the year by N3.3 trillion from the previously budgeted N8.41 trillion to N5.08 trillion last week.
In the revised proposal sent to the National Assembly for approval last week, the Federal Government estimated that debt service would gulp N2.45 trillion, the same amount quoted in the original budget. While revenue generation was estimated at N8.41 trillion before the global health crisis eroded revenue generation and global demand for the nation’s crude oil.
This indicates that the debt service to revenue ratio was 29 percent in the initial budget of N10.59 trillion.
However, the dropped in global oil prices, disruption of global supply chain and low economic activities amid lockdown has forced Africa’s largest economy to cut down on revenue expectations to N5.08 trillion for the year. The nation’s oil benchmark for the year was also lowered from $57 per barrel to $30 to reflect the current economic reality of the nation.
Therefore, Debt service to revenue ratio, rose by 39.5 percent to 48 percent, according to the revised budget.
It is, however, uncertain if Nigeria and other African nations would pay interests this year given the G20 position. The G20 had said it was considering debt relief for African nations to allow them enough fiscal space to mitigate COVID-19 risk.
This was after the World Bank said the continent spent about $35 billion on debt servicing in 2018, saying that a well-structured debt relief package could create as much as $44 billion for the continent.
On Monday, China said it would join G20 to look at how best African nations can be relieved of their debt burden in the near-term as the world struggles to mitigate global risk.