Nigeria is edging closer to a Lebanon financial crisis that has caused the country to see a high rate of poverty, inflation, and emigration.
BusinessDay, citing new projections by the International Monetary Fund, reported that Nigeria could be spending 100 per cent of its revenues servicing debt by 2026.
Nigeria’s debt servicing cost as a percentage of its revenue jumped from 32 per cent in 2015 to a peak of 89 per cent in 2020 before moderating to 85.5 per cent in 2021, according to IMF data obtained from the Budget Office.
An economist told the publication that “the figures are scandalously high.”
As of 2019, Nigeria was already paying the highest (as a percentage of its revenue) of any other country servicing debt, with Lebanon, Sri Lanka and Zambia making up the top four, according to World Bank data analysed by the publication.
Lebanon, the only other country in recent history to have spent 100 per cent of its revenues paying interest to creditors at some point, continues to be in the middle of what appears to be a never-ending financial crisis. Successive governments have piled up debt following the 1975-1990 civil war, with little to show for it.
The high debt servicing cost has crippled public finances and limited the ability of the government to invest in the productive sectors of the economy.
The Covid 19 pandemic and a food security crisis as a result of the war in Ukraine further added to the country’s economic situation as Lebanon’s nominal GDP contracted by 58.1 per cent. The World Bank has called it one of the worst financial crises in centuries
Despite the warning signs from Lebanon, Nigeria seems to be headed in the same direction. The country’s debt stock has tripled since 2015 to nearly N40 trillion in 2021, according to data from the Debt Management Office. The country’s GDP has, however, contracted by 22 per cent in the same period
The burden of interest payments is set to worsen as global and local interest rates rise this year.
“Rising debt service costs and a growing subsidy bill will leave little or nothing for critical investment in human capital and infrastructure which Nigeria badly needs,” said Muda Yusuf, an economist and CEO of the Centre for Promotion of Private Enterprise.