IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 7 NO. 3 2022
DOI: https://doi.org/10.56201/ijefm.v7.no3.2022.pg1.12

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Debt Servicing To Revenue Ratio (DSR) in the Context of Fiscal Space, Barro-Ricardian Equivalence and Debt Sustainability in Nigeria (General Outlook and Trend)

EFUNTADE, Olubunmi Omotayo EFUNTADE, Alani Olusegun, FCIB, ACA

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Abstract

The study examined general outlook and trend on debt servicing to revenue ratio (DSR) in the context of fiscal space, Barro-Ricardian equivalence and debt sustainability in Nigeria using descriptive statistics and quantitative analysis in line with Mugun (2021) recommendation that Sub Saharan African countries should exhibit restrain in contracting new external debt since total debt servicing was associated with decline in economic growth. Nigeria’s debt service/ratio (97% as at December, 2021) which is abysmally high as against the World Bank prescribed debt service to revenue ratio of not more than 22.5 per cent. Which means in Nigeria, for every N100 earned or generated, it spend N97 in debt servicing. The debt-servicing ratio to revenue generation including both internal and external debts grows rapidly. This is an abysmal case of revenue challenge that may lead to debt sustainability problem if not properly managed. The study considered both subsidy and tax reform as inevitable in the short and medium term because Nigeria fiscal space is untenable. It is worth noting that this paper supported the Barro- Ricardian equivalence proposition that huge debt servicing via budget deficits implies debt - finance reduction in government revenue. Optimal debt policy, optimal national saving, management of government debt with instruments of varying maturities. Need to look keenly into area of grants, that can clearly provide some fiscal space, in contrast to borrowing, where debt sustainability considerations are relevant, Nigeria governments can do private partnerships to create more fiscal space to finance infrastructure investment that normal budgetary ceilings would limit. The study makes recommendations on improving government revenue, creating fiscal space for infrastructural development and ensuring sustainable deficit and debt levels through an efficient and effective debt management plans.

keywords:

Barro-Ricardian equivalence, debt servicing, debt servicing to revenue ratio (DSR), debt sustainability, fiscal space and revenue JEL Classification Codes: B52, H63, H80, H69, H62, H0

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