Budget Office warns of ‘trouble’ as debt service ratio exceeds 30 per cent

Nigeria’s low debt-to-revenue ratio, according to the Budget Office of the Federation, has resulted in a “limited borrowing space,” and the country faces “trouble” if its borrowing surpasses its permitted levels.

Ben Akabueze, the director-general of the budget office, stated this when he addressed the members-elect of the 10th National Assembly on Wednesday during the weeklong induction ceremony in Abuja.

He noted that while Nigeria’s debt-to-GDP ratio was still healthy, the country’s debt-to-revenue ratio is not.

Akabueze was addressing the newly elected and re-elected members of the National Assembly, which is in charge of debating, amending, and passing economic measures like the Finance Bill in addition to the annual budgets of the Federal Government.

He said, “You may have heard that we have one of the lowest Gross Domestic Products-to-debt ratios in the world. While the size of the FG budget for 2023 created some excitement, the aggregate budget of all the governments in the country amount to about N30tn. That is less than 15 per cent in terms of ratio to GDP.

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“Even on the African continent, the ratio of spending is about 20 per cent. South Africa is about 30 per cent; Morocco is about 40 per cent. And at 15 per cent, that is too small for our needs. That is why there is fierce competition for the limited resources.

“That can determine how much we can relatively borrow. We now have very limited borrowing space; not because our debt to GDP is high, but because our revenue is too small to sustain the size of our debt. That explains our high debt service ratio. Once a country’s debt service ratio exceeds 30 per cent, that country is in trouble and we are pushing towards 100 per cent, and that tells you how much trouble we are in.

“We have limited space to borrow. When you take how much you can generate in terms of revenue and what you can reasonably borrow, that establishes the size of the budget. The next thing would be to pay attention to the government’s priority regarding what project gets what.”

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