Nigeria: Higher debts – Government blames low incomes and income diversification

The Debt Management Office (DMO) said the inability to generate more revenue is responsible for Nigeria’s high debt service-to-income ratio, just as the federal government diversifies its sources of revenue.

DMO said so yesterday in a statement in response to a report by the Lagos Chamber of Commerce and Industry (LCCI) stating that Nigeria’s current debt-to-GDP threshold is not a reliable means of calibrating the Nigeria’s current debt burden.

Experts have warned the federal government it may resort to borrowing to service its debt due to low revenues amid continued borrowing. But the government has announced plans for more borrowing in defiance of the advice.

Responding, DMO said: “The government is largely dependent on the sale of crude oil, as its main source of revenue. While Nigeria, with a revenue to GDP ratio of 9%, has generated revenue close to countries such than 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.

He also said that the countries mentioned had higher public debt to GDP ratios (Kenya: 67.6%, Ghana: 78.9% and Angola: 136.5%) compared to Nigeria (22.80%) but had 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 incomes, compel the government to borrow, at least in the short term,” the agency said.

He added that due to the low revenue base, the government was already diversifying sources of revenue generation.

DMO also said it would reduce direct borrowing, the government has engaged the private sector for infrastructure development through initiatives such as the Infrastructure for Tax Credit Scheme, the new Infrastructure Corporation of Nigeria Limited and other public-private partnership (PPP) agreements.