Public debt is without a doubt brought about by massive expenditure by the government, which is as a result of the high transfers, or militarization of the economy. The cause of a public deficit is hardly a result of extremely low taxes. However, a public deficit from ow taxes can be caused by various factors, including an ineffective tax collection framework, and narrowing of the tax base as a result of the falling degree of GDP. The main explanation behind a public deficit is the inability to profitably adjust public expenditure to the benefit of the economy.
Nigeria’s public debt has been increasing since the year 2000, with public debt at US$29 billion. The main causes of this deficit are the increase in public expenditure, borrowing from foreign countries at a very high-interest rate, a high dependence on imports, and a decline in the oil incomes from 1970. Moreover, an increase in the interest rates influenced the size of the foreign debt.
This year, the budget deficit in Nigeria is worse than that of the previous years. It is no doubt that the economy of Nigeria is the largest in Africa. But have steadily been experiencing budget deficits. In the first quarter of 2020 on March 31st, its public debts rose up to $79.5 billion. Compared to the $68.09 billion, figures of 2019, this was a 15% increase in public debt. The recent reports from the Debt Management Office, DMO, confirmed the numbers on Friday, June 3rd, 2020.
The rise in public debt is impacting the Nigerian economy and has contributed to the ever-growing inflation in the country. This debt is pretty much directly tied to Naira’s exchange rate and has been confirmed by multiple FX trading experts. Nowadays, Nigeria is considered to be the FX center of Africa, thus being a primary method of how people find best forex brokers to trade with within the region. Should the economy continue to be in such debt, that title may be taken back by South Africa.
COVID-19 impact on Nigerian public debt
The public debt stock of the country has seen a consistent rise due to its investment in infrastructural development to boost the economy, which has been back and forth through recessions, especially because of the coronavirus pandemic that brought down the prices of oil worldwide.
About $27.66 billion was recorded as external debt, per information acquired from the Debt Management Office. This constitutes 34.89% of the total public deficit. While, domestic debt was about $51.64 billion, which constitutes about 65.11% of the total public deficit. The government represents 50.77% of the local debt, which is $40.26 billion. Also, the Federal Capital Territory and state governments constitute 14.34% of the local debt which was estimated at $11.37 billion.
Following the outbreak of the coronavirus, Nigeria has been under a great deal of economic crisis especially with the costs of oil drastically falling. About 90% of the country’s foreign revenue is derived from the oil sector and constitutes 60% of the country’s total revenue.
Measures to reduce public debt
Currently, the Nigerian government is currently working on ways to adjust the budget deficit by focusing on local markets and concessionary debts which is aggravated by the drop in income. The government is supposed to loan N850 billion from the local market, as indicated by the recently approved 2020 budget. The increase in Nigeria’s budget deficit in the first quarter of 2020 has pressurized the state into spending $1.69 billion to fund its local debt.
Nigeria’s worldwide ratings are potentially at risk because of the sharp increase in the country’s debt and a developing fiscal gap. As per a report from the global rating organization, this could provoke a downgrade in ratings as the administration tries to stir economic growth and manage the effect of low oil costs and revenue drops. The organization reports that the nation’s debt to income ratio is set to fall 538% further before the end of the year, from 348% last year.
