Analysts at FSDH Research, one of the nation’s financial markets research and consulting entity, has charged the Federal Government to implement policies that will grow and diversify the the nation’s revenue base in order to avert a debt crisis.
The research firm, in its report obtained on Thursday, noted that government was spending too much of its revenue to pay interest on loans, leaving authorities with little resources to spend on critical sectors of the economy that could spur strong growth and maintain a healthy economy to generate revenue.
The latest warning is coming barely a week after the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), cautioned that the country might slip into recession again just two years after it exited.
The research analysis reflected that the growth in Nigeria’s debt was higher than the growth in revenue, indicating that Nigeria has the lowest government revenue to Gross Domestic Product (GDP) ratio at 6 percent among some selected countries.
According to the company, Nigeria’s over-dependency on crude oil revenue, combined with volatility in both the price and production of crude oil are the major reasons for sluggish growth in government revenue.
The research company reported further that growing non-oil revenue will require that the Nigerian economic environment has inherent structures that can support business growth, noting that such structures include adequate physical infrastructure, policies, legal and regulatory frameworks that will make the economy business-friendly to generate taxable profits.
FSDH Research clarified further: “Our analysis of the ratio of the interest payment on domestic debt relative to the FGN allocation from the Federal Account Allocation Committee (FAAC) shows that the FGN is spending too much of its revenue to pay interest on loans.
“This leaves the government with little resources to spend on critical sectors of the economy that could support strong growth and maintain a healthy economy to generate revenue.
“The current high interest payment relative to revenue may also increase the credit risk of the country. Although the government has been able to meet its debt obligations (interest and principal payments) so far, if the current situation is not addressed, the interest rate on government loans may increase because of the perceived elevated risk. This would also lead to higher interest rates for private sector operators”, it added,
The firm disclosed that the external environment was becoming tighter than before because of the rising interest rate in the US.
Last week, the Federal Open Market Committee (FOMC) of the US Federal Reserve raised the Federal Funds Rate by 0.25 percent to a range of 2 percent to 2.25 percent.
In the report, FSDH Research predicts that the FOMC will still announce another rate increase before the end of the year.
The investment firm fears that this development will increase the borrowing cost on any new Dollar denominated loan.
“Consequently, borrowing in the international market is no longer as attractive as it was before. It is crucial, therefore, to structure the Nigerian economy to enable it to generate revenue and rely less on borrowing to meet its basic needs,” the firm added.