Analysts have as a matter of urgency asked the Federal Government to diversify its revenue base, because the rate of growth in Nigeria’s debt is now higher than the rate of growth in its revenue.
Analysts at FSDH Research believe the Federal Government of Nigeria (FGN) needs to urgently implement policies that will grow and diversify the revenue base of the country to avoid imminent debt crisis.
“Our analysis shows that the growth in Nigeria’s debt is higher than the growth in revenue. In addition, Nigeria has the lowest government revenue to Gross Domestic Product (GDP) ratio at six per cent among some selected countries”, the analysts said.
Nigeria’s over-dependency on crude oil revenue, combined with volatility in both the price and production of crude oil are the major reasons for sluggish growth in government revenue.
Growing non-oil revenue will require that the Nigerian economic environment has inherent structures that can support business growth.
“Our analysis of the ratio of the interest payment on domestic debt relative to the FGN allocation from the Federal Account Allocation Committee (FAAC) shows that the FGN is spending too much of its revenue to pay interest on loans”, said FSDH Research.
The current high interest payment relative to revenue may also increase the credit risk of the country.
Although the government has been able to meet its debt obligations (interest and principal payments) so far, if the current situation is not addressed, the interest rate on government loans may increase because of the perceived elevated risk.
The Federal Open Market Committee (FOMC) of the US Federal Reserve increased the Federal Funds Rate by 0.25 per cent to a range of two per cent to 2.25 per cent on 26 September 2018.
FSDH Research predicts the FOMC will still announce another rate increase before the end of the year. This development will increase the borrowing cost on any new Dollar denominated loan
“It is crucial, therefore, to structure the Nigerian economy to enable it to generate revenue and rely less on borrowing to meet its basic needs”, it said.