KPMG Warns: Nigeria's Debt Service to Revenue Ratio May Exceed 100% in 2023

Nigeria, Africa’s largest economy, faces a grim fiscal reality as professional services firm KPMG warns that the country may allocate more than 100 per cent of its revenue towards debt servicing in 2023.

In its recently released macroeconomic snapshot, KPMG expressed deep concerns about Nigeria’s escalating risk of plunging into critical debt servicing problems unless immediate actions are taken to significantly boost revenue.

KPMG highlighted the recent approval by the Senate for the securitization of N22.7 trillion Ways and Means advances, which were provided to the government by the Central Bank of Nigeria (CBN).

The firm projected that Nigeria’s debt, which stood at N46.3 trillion by the end of 2022, would instantly skyrocket to approximately N70 trillion. Adding to the growing concern is the expected new borrowings of N8.8 trillion from both domestic and external sources in the 2023 state and federal budgets.

These factors combined could push the total debt stock to an alarming N77.8 trillion by the end of 2023 according to KPMG.

Struggle to Manage Debt

In 2022, Nigeria’s debt service-to-revenue ratio was already at a staggering 80.6 per cent, far exceeding the World Bank’s suggested threshold of 22.5 per cent for low-income countries like Nigeria.

With a revenue-to-GDP ratio of only 4.49 per cent as of December 2022, KPMG warns that the debt service to revenue ratio may surpass the ominous 100 per cent mark in 2023.

Such a scenario would severely limit the government’s fiscal space and impede its ability to finance essential operations and functions. Urgent measures must be taken to increase revenue in order to avert this impending crisis.

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The Transition Year Dilemma and the Need for Sustainable Borrowing

KPMG acknowledges the challenges faced by the incoming administration, which will require time to establish and settle before introducing and implementing new policies.

The new government may find itself compelled to borrow even more to fund its operations and stimulate much-needed growth in both physical and social capital.

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To achieve this, KPMG suggests that the government may need to loosen various legal and self-imposed restraints and buffers pertaining to deficit financing.