The time to arrest the rising debt profile is now!

CONCERNS are mounting in several quarters over the state of Nigeria’s economic future as the country’s debt profile keeps rising. This is not a new situation as Nigeria’s national budgets over a very long period have been posting deficits as a permanent feature. The country’s revenue streams are often affected by seasonal droughts and so the deficit component of the budget is serviced with loans from domestic and foreign sources.

On the surface, there is nothing wrong with a country sourcing for funds outside its regular revenue streams to prosecute critical projects that have potentials to energise its economy and create more revenue streams for smooth servicing of such loans. If a country has the potential and capacity to make repayments without hurting other aspects of governance, taking loans should not be a problem. However, it is disturbing when a country goes on a borrowing binge that is neither strategic in approach nor reasonable in application.

For almost two decades now, Nigeria has been sourcing loans with huge repayment implications to service recurrent needs instead of funding infrastructure that would speedily grow the economy and provide the basis for meeting creditors’ terms and conditions. This is what has given rise to very serious concerns as to which direction the economy is headed and what future the country hopes to build with the huge debt servicing regime that it is currently saddled with.

Responding to concerns raised about the mounting debt profile, the government says Nigeria’s debt position still remains within manageable levels, insisting that Nigeria has no debt problem; rather it has a revenue problem. It has always been that Nigeria’s debt/revenue ratio appears high because the county is facing a revenue challenge – the argument is that as revenue improves, the ratio will consequently decline. However, this logic has not provided any comfort because, instead of improving, revenues are declining. The numbers are not adding up and it explains why Nigerians are generally worried.

By June this year (half year 2020), the total debt stock had reached N31.01 trillion (about $85.0 billion) for both foreign and local debts. External debt profile stood at N11.36 trillion or $31.47 (36.65%) while domestic debt stood at N19.65 trillion or $54.42 billion (63.35%). Between January and June this year, N921.9 billion was used to service domestic debts while N288.6 billion ($759.6 million) was used on foreign debts, making a total of N1.21 trillion. Compared to N1.06 trillion spent in the same period of 2019, debt servicing increased this year by 14.6%. That is a worrying scenario. Foreign debt grew by 13.8%, compared to $27.7 billion (N9.9 trillion) recorded in the first quarter of the year; and public debt grew by $22.09 billion in the last five years, indicating an increase of 34.6%. The figures speak for themselves and paint a gloomy picture.

Government claims that the recent increase in debt stock was as a result of the $3.36 billion Budget Support Loan from the International Monetary Fund (IMF) and New Domestic Borrowing, which was used to finance the Revised 2020 Appropriation Act, including the issuance of N162.56 billion Sukuk and Promissory Notes issued to settle Claims of Exporters. That exposes our precarious revenue position even more, because, if the revenue streams were flowing reasonably, we would not be going cap in hand each time there is a disruption in the status quo.

The one year moratorium granted by most creditors (IMF inclusive) to debtor nations because of Covid-19 pandemic should have been a potent signal for Nigeria to rethink her borrowings and re-strategise, rather than go borrowing again.

The fact that we spent N1.21 trillion (11.2% of revised N10.8 trillion 2020 budget) to service both domestic and foreign debts between January and June 2020 in an economy characterised by contraction in activities, reduced capital inflows, trade decline across international borders and reduced government revenue as a result of decline in global oil price, is enough to raise eye brows and ring alarm bells.

The concern is not just about the figures but much more about the use to which the loans have been put; and eventually the ability to repay without mortgaging the future. The Nigerian government over the years has been known to be a very poor manager of resources. The political elite and their collaborators in government engage in unbridled corruption and mindless looting of the nation’s treasury without any consequence.

At the end of the day, borrowed funds mostly end up in private pockets and on frivolous spending such as subheads that add nothing tangible to the growth of the economy. The loans eventually become economic burden, as repayments would have to be sourced from regular revenue streams or through more loans, thereby stalling other development projects.

Official records from the Central Bank of Nigeria (CBN) show that between 2015 and 2019, the government had spent about N34.83 trillion, comprising recurrent expenditure (73.1%), capital expenditure (19.1%) and transfers (7.8%). These figures indicate that only about 19% has been invested in critical development through the creation of relevant infrastructure, in spite of the loans. The rest were spent on recurrent expenses like salaries and overheads. This contradicts government’s often touted position that the projects to be financed with such loans will largely support non-oil export and reduce import dependence, thus eliminating the risk of external debt overhang.

Clearly there is a revenue challenge, but this might eventually turn into a debt challenge if nothing concrete is done quickly to address the seemingly intractable situation. There must be a coherent and clear approach to addressing the revenue situation, including increasing non-oil revenues and optimising government spending. The Debt Management Office (DMO), whose responsibility it is to manage the country’s debt, should sit up and work with global bodies and institutions to ensure they get their priorities right for the country.

The National Assembly should henceforth rigorously scrutinise loan requests from the Federal Government before further approvals are given. State Assemblies should do same as we cannot afford to keep on borrowing. The NV 2050 document should ensure that debt management is a strategic policy objective of government and Nigeria’s Sovereign Wealth Fund (NSIA) should be funded well to prepare for the rainy day.

State governments which contribute 13.5% and 21.3% of foreign and domestic debts respectively must redirect their attention from reckless spending to strategic investments to grow the regional and local economies. They have had three bailouts from the CBN in the last couple of years, raising their domestic debt profiles. In most of the states, there are insufficient initiatives to raise internally generated revenues to shore up revenues and be able to guarantee repayments.

Unfortunately the country is trapped in a smouldering security situation which has seriously threatened agriculture and manufacturing – two sectors that would have given a big boost to the non-oil sector. With dwindling revenues from the oil sector due to drop in production levels and low and fluctuating oil price in the global market, the future does not look bright, but the federal government would do well to urgently address the serious security challenge facing the country while concentrating on the development of critical infrastructure that would provide a strong base for economic growth. The prescriptions in the Economic Recovery and Growth Plan (ERGP 2017 – 2020) must be revisited and implementation given the attention it deserves.

With the African Continental Free Trade Area (AfCFTA), and the impending continental free trade, our currency could be negatively impacted by inflation if our debt keeps rising. Inflation is already a double digit scenario as against single digit few years back. From all indications, it is evident we must not be caught in a gripping debt trap — the time to put on our thinking cap is now!