International Monetary Fund (IMF) has projected that the Federal Government of Nigeria may spend 93 per cent of the country’s revenue on the payment of interests incurred on its debts by 2022.
In a projection provided in the IMF’s ‘Nigeria Staff Report for the 2021 Article IV Consultation’ report, the Fund also projected that 139 per cent of the nation’s revenue will be on paying off of interests from debts by 2026.
The Washington-based organ said that the interest-to-revenue ratio would rise steadily from 86 per cent in 2021, adding that a high interest-to-revenue ratio puts the country at fiscal risks.
The report reads: “Although interest payments were only two per cent of GDP in 2020, about 89 per cent of Federal Government revenues were absorbed by interest payments, reflecting poor domestic revenue mobilisation capacity.
“The FG interest-to-revenue ratio is expected to slightly decline to around 86 per cent in 2021 and rise steadily to reach 139 per cent by 2026. High interest-to-revenue ratio puts fiscal space at risk and makes financing of current and capital spending highly dependent on debt financing.”
A table illustration in the report also showed that the steady increase in the interest-to-revenue ratio is projected at 93 per cent in 2022, 96 per cent in 2023, 111 per cent in 2024 and 125 per cent in 2025.
It, however, said that the ratio is very susceptible to shocks, which can make the 2026 ratio hit between 247 and 398 per cent.
“The FG interest payments-to-revenue ratio is highly vulnerable to shocks. Higher interest rates will increase Nigeria’s vulnerabilities by placing a principal risk on debt service capacity. In particular, a real interest rate shock would increase the FG interest-to-revenue ratio to about 348 per cent by 2026.
“A standardised combined macro-fiscal shock would increase the ratio to 398 per cent. Other shocks to real GDP growth, primary balance and the exchange rate would increase the ratio to between 247 and 273 per cent by 2026,” the report read.