World Bank has warned that the interest rate payment on Nigeria’s debt is not sustainable, when compared with its current revenues.
A Senior Economist, World Bank office, Ms. Yue Lee, explained that the country either had to increase its revenues or work towards balancing the debt profile to make way for more foreign debt, rather than allow the continued dominance of local debts with high interest rates.
She said, “Nigeria’s debt to Gross Domestic Product ratio is relatively low. What is of concern is the ratio of interest payment to revenue. That is what is concerning. This reflects the fact that there has been a massive drop in revenues because of the drop in oil revenues.
“There are two main strategies to reduce this debt burden. One is to increase the revenues. Here, in order not to be vulnerable to the volatility of the oil sector, the critical thing is to increase the non-oil revenues like the Value Added Tax, the income taxes and the excises outside of oil. This is something we have been discussing with the government about.”
Lee also spoke on the nation’s continuing foreign exchange crisis, saying that further liberalisation could lead to depreciation of the naira, but predicted recovery after a short while.
“Once it is liberalised, the market will determine the exchange rate. We don’t know exactly what the exchange rate will be. Possibly, it will depreciate further; but then, it may adjust back. These are the forces of demand and supply.
“If the exchange rate depreciates further than what it is at the interbank, there could be some inflationary impact. I think we should bear in mind that right now, a lot more of large scale transactions are possibly done outside of the official interbank exchange rate,” Lee said.