Nigeria spent nearly all the revenues it earned last year servicing its debts, the World Bank said in a new report.
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Debt service as a proportion of government income increased to 96% in 2022 from 83% a year earlier, according to the World Bank. Low revenue and rising interest payments have left Africa’s largest economy with almost no money after paying interest on the debt.
This has led to persistent fiscal deficits that are partly funded with costly central bank loans and a raising public debt stock to gross domestic product ratio of 38%, just below the 40% self-imposed limit set by the government.
“Nigeria is in a more fragile position than before the late 2021 global oil price boom,” the World Bank said.
The organization said one important step the government can take to ease fiscal pressure is to scrap an expensive gasoline subsidy — which cost 2.3% of GDP in 2022, up from 0.7% the year prior.
Nigeria’s president-elect Bola Tinubu, who will take over from outgoing Muhammadu Buhari on May 29, has pledged to end the subsidy that the Finance Ministry expects to drain $7.2 billion from state finances in the first six months of this year.
Its removal would boost revenues but also raise the cost of living for Nigerians already dealing with high inflation, which quickened to an almost 18-year high of 22% in March.
Nigeria’s economy is projected to grow by an average of 2.9% per year between 2023 and 2025, only slightly above the population growth rate of 2.4%, according to the World Bank. An additional 13 million Nigerians will fall into poverty between 2019 and 2025 due to the low economic growth, it said. Already, 41% of the country’s estimated 219 million people live in extreme poverty.
In the absence of a significant boost in oil revenues and tax reforms, the World Bank forecasts that Nigeria’s “fiscal deficit will remain above 5% of GDP” until 2025.