Fitch projects Nigeria’s debt to revenue ratio to increase by 1,031% in 2022

The international credit rating agency, Fitch on Monday projected that Nigeria’s debt to revenue ratio will get worse in 2022.

The firm said debt will rise by 32.6 percent of gross domestic product, which will further create a revenue problem for the country.

In November last year, Nigeria’s debt to revenue ratio was 89 percent, dropping from 94 percent.

But Fitch projected it will rise by 1,031 percent in 2022 due to the rising debt and low fiscal revenue which was compounded by the COVID-19 pandemic.

Note that debt to revenue ratio is used to indicate the revenue percentage the government spends on servicing debt. Considering the debt to revenue ratio of last year, it means the government used 89 percent of its revenue to pay debt.

Commenting on the rising debt and low revenue generation, Fitch said interest on the debt would account for 64 percent of Nigeria’s revenue by next year.

READ ALSO: Fitch raises the alarm on Nigerian government borrowing from CBN

The agency said: “General Government (GG) debt will further rise to 32.6 percent of GDP in 2022, from less than 13 percent a decade earlier but will remain much below the forecast ‘B’ median of 70 percent. The key challenge to debt sustainability stems from low fiscal revenue.

“The picture is much weaker at the Federal Government level, with forecast debt-to-revenue and interest-to-revenue ratios of 1,031 percent and 64 percent, respectively, in 2022, reflecting a higher share of the FGN in GG spending and debt than in GG revenue.”

Nigeria issued ‘B’ rating due to high risk exposure.

The credit rating firm awarded Nigeria ‘B’ rating, indicating that the country is highly exposed to adverse economic conditions, but has the capacity to meet its financial commitments.

Credit ratings are used by creditors to determine if a company or government is worth a loan and can afford to pay the debt as at when due.

Although, ‘B’ rating is a low grade, it is still acceptable among capital investors or creditors.

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