Why Debt Service To Revenue Ratio Is High – Fed Govt

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, has blamed Nigeria’s high debt service to revenue ratio on the large expenditure base of the country.

Ahmed, in an interview with Bloomberg on Friday, said the Federal Government was working to increase revenues and reduce expenditure.

She said, “Our debt service to overall revenue is high because we have a very large expenditure base. We have a large proportion of our budget dedicated to payroll, and Mr President had decided from the beginning of his administration that we were not going to disengage staff.

“So, you have to pay salaries, you have to pay pensions. And also, we have to fund the other arms of government, which are the judiciary and the legislature.”

The minister said revenues were growing but expenditure grew at a much faster rate.

“So, we do have a revenue problem. And we are working to curtail expenditure by being able to limit agencies’ expenditure to 50 per cent of their revenues,” she added.

The minister said the country could approach the foreign capital market again this year, considering the success of the last bond it raised.

She said about $12bn was made available, although the country only took $4bn.

On the rising oil prices, Ahmed said, “The high price of oil means that we would be able to earn more revenue. At $85 per barrel is way above the $40 per barrel we have on our 2021 fiscal projections.

“But we also have the challenge of having to buy petroleum products for use in-country, because we do not have functional refineries. So that eats into the revenues we would have otherwise realised.”

She said with the Dangote Refinery set to begin operation in 2022, the country would be able to save 30 per cent of its current expenditure on oil, and make foreign exchange from the sales of petroleum products to neighbouring countries.

According to Ahmed, the ministry is working with the Central Bank of Nigeria to reduce the gap between the official and unofficial rate of the dollar.

“It is our desire to be able to reduce the gap between the unofficial market rate and the official market rate. Again, what we have to do is to improve the sources of foreign exchange earnings. Right now, the predominant source is oil and gas,” she added.