Low debt-GDP ratio not sole determinant of borrowing capacity — Afrinvest

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By Adaeze Okechukwu

FINANCIAL experts have indicated that Nigeria’s low debt to GDP ratio should not be the sole measure of its borrowing capacity.

Analysts at Afrinvest Limited, a Lagos based investment house, apparently reacting to the statement credited to the Finance Minister, Mrs. Kemi Adeosun, at the backdrop of a new borrowing plan, to the effect that the country has enough headroom for more borrowing given its low debt to GDP ratio, argued to the contrary in the annually-released banking sector report that was launched last week titled, ‘Nigeria reopens for business’.

The report stated: “A low Debt to GDP ratio should not be the sole measure of borrowing capacity, considering Nigeria’s peculiar low tax revenue to GDP ratio (6.0 percent). A significant portion of economic activity takes place in the informal sector which is more difficult to tax. Debt service obligations present a red flag, with the debt service to revenue ratio at 47.0 percent in fiscal year 2016.

“We however expect a possible moderation in 2017 on account of the rebound in oil revenue. While foreign debt obligations are mostly long term multilateral facilities (up to 78.2 percent) and do not constitute short term risks, policymakers have to be watchful of taking on more external leverage without expanding revenue size given the debt service implication of any future currency devaluation.”

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