With over N1trillion expended on settling foreign and domestic debts in the first quarter alone, economic pundits are worried this development will further shoot up the country’s projected N38trillion debt stocks by the end of the year, reports Ibrahim Apekhade Yusuf

Often times than not, the received wisdom by the government’s spin doctor is that the country has a relatively low debt to GDP. However, some discerning members of the public have argued that the humongous debt service costs constitute a major challenge in itself and should be a serious cause for concern.

The country’s national debt in relation to Gross Domestic Product (GDP) at 35.51 per cent, some analysts opine that the debt situation is still within reasonable limits.

According a study conducted by the World Bank, a debt to GDP ratio that exceeds 77 per cent for an extended period of time may result in an adverse impact on economic growth.

This implies that the Nigerian debt situation is not really alarming when compared to the country’s GDP.

Crux of the matter

According to the latest report by the Debt Management Office (DMO), domestic and foreign debt service gulped over N1.02 trillion from the coffers of the Federal Government in the first quarter of this year.

The debt service ratio rose by 35.7 percent when compared to the N753.7 billion spent during the same period in 2020, at a time 99 percent of government revenue was consumed by debt.

External debt accounted for N410.1 billion of the amount spent on debt service in Q1 2021, while domestic debt service gulped N612.71 billion.

FGN Bonds got N537.78 billion, surpassing the N239.46 billion recorded in first quarter of last year. It was gathered that N31.44 billion was paid as principal repayment as well just as Nigerian Treasury Bills received N35 billion to service debt owed.

However, multilateral loans received $134.04 million as debt service, with $104.4 million given to International Development Association, $16.21 million to AFDB, and $9.5 million to African Development Fund while bilateral loan accounted for $106.3 million, while Euro bonds received $763 million.

Echoing similar sentiments, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said Nigeria’s total public debts would hit N38trillion by December next year.

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Ahmed disclosed this during her presentation to the Senate Committee on Local and Foreign Debts, said paucity of funds was responsible for the increasing number of abandoned road projects across the country.

The minister said: “The total public debt stock comprising the external and homes debts of the Federal and state governments and the Federal Capital Territory stood at N31.01trillion ($85.90 billion) as at June 30, 2020.

“It is projected, based on existing approval, to rise to N32.51 trillion by December 31, 2020 and N38.68 trillion by December 31, 2021.”

States with the highest external debt
1. Lagos – $1.4 billion
2. Edo – $227. 7 million
3. Kaduna – 223.8 million
4. Cross River – 192.7 million
5. Oyo – $136.5 million

States with the lowest external debt
1. Borno – $21.32 million
2. Taraba – $21.31 million
3. Yobe – $27.2 million
4. Plateau – $28.5 million
5. Kogi – $31.1 million
Source: DMO

IMF damning verdict

The International Monetary Fund (IMF) has projected that for every N100 earned in 2021, Nigeria will be spending N60 servicing its fast-growing debts.

IMF said in 2020, Nigeria spent 92.6 percent of its revenue servicing debt, up from 52.6 percent in 2019, 60 percent in 2018 and 58.4 percent in 2017.

A situation IMF warned needs a fundamental policy reset by the federal government to engendered macroeconomic stability that will help engender growth and employment.

“With high poverty rates, revenue mobilisation will need to rely on progressive and efficiency-enhancing measures, more so the current crisis provides a unique opportunity to break away from the past.”

“Socio-economic conditions have deteriorated, with rising food inflation, elevated youth unemployment, and mass protests in October 2020, and surveys show worsening food insecurity with a significant impact on the vulnerable,” IMF said in its report.

IMF, therefore, noted that a significant revenue mobilisation will be needed in the medium term to reduce fiscal sustainability risks arising from low debt-servicing capacity.

Source of concern

The country’s debt profile remains a source of concern for policymakers and development practitioners as the estimates in 2020 put the debt service-to-revenue ratio at 60 percent, worsened by a steep decline in revenue associated with falling oil prices.

 

Way forward

In the view of Toki Mabogunje, President, Lagos Chamber of Commerce and Industry (LCCI), “The high level of debt servicing continues to hinder robust investments in hard and soft infrastructures which are key to stimulating productivity and improving living standards.

“While we commend policymakers for their interventions in reflating the economy and supporting businesses, we urge that special attention be given to sectors severely impacted by the pandemic. The federal and state governments need to expeditiously redirect attention to these sectors including aviation, hospitality, entertainment, and manufacturing.

“This has become necessary to protect jobs, preserve investments and provide the much-needed liquidity required to revive these sectors,” she added.

Also advising the federal government on how to improve its debt risk, an economist, Tope Fasua, there is need to check deficit financing and make the annual budgets more impactful.

Mr Fasua said that though borrowing had become imperative due to prevailing circumstances, especially with the advent of COVID-19, such borrowings should be judiciously utilised to improve infrastructure that can grow the economy.

“Unfortunately, we have found ourselves in a difficult scenario due to the COVID-19 pandemic and falling crude oil prices and we just have to go borrowing like most other countries in the world.

“The federal government should ensure that our borrowings are effectively utilised for optimum economic impact,’’ he said.

Laoye Jaiyeola, Chief Executive Officer of the National Economic Summit Group (NESG), said that, though Nigeria’s debt to GDP ratio could be considered low, the revenue that went into debt servicing was still on the high side.

Jaiyeola opined that expending 25 per cent to 30 per cent of national revenue on debt servicing, as presently done by the Nigerian government, was not sustainable.

He urged the federal government to adopt tough but necessary policy choices in order to improve on its revenue and reduce its dependence on foreign and local loans to fund budget deficit.

The minister attributed the various abandoned road projects in the country to poor funds releases caused by dwindling revenue.

“I am one person that feels that we should just take one major road in one geopolitical zone and finish it.

“We were not able to do that because of the processes in which appropriation is made both at the executive as well as the legislative arms of government.

“Truly, if we are able to just take one or two projects at a time and complete it before going to the next one, it will be better.

“You will see a road that costs, maybe N5 billion, and you will see a provision for N100 million, N200 million or 300 million.

“Of course the project will never finish. After two years, the contractor comes back and asks for variation, and the amount keeps growing. I wish that we get to a point when we sit down as government and agree that let us select a few projects, finish them in 2020, and then in 2021, we select the next.”

Debts to China

Experts have expressed anguish over Nigeria’s rising indebtedness to the People’s Republic of China, saying that it is a recipe for economic slavery.

This cross-section of experts, all members of Transforming Uplifting and Reforming Nigeria (TURN), a non-governmental organisation, hold the view and very strongly too that the loans from China come with a lot of baggage and as such demand that the nation’s economic managers should exercise caution.

Firing the first salvo, TURN President, Dr. AG Ahmed warned that loans taken by the government should not mortgage the future of the citizens or that of the unborn generation, while urging that government should involve experts from the private sector to evaluate the risks and benefits of a loan and take all necessary steps to ensure that it truly benefits the country.

Specifically, TURN boss said, “Nigeria’s external debt loan stands at $31.98 billion (Debt Management Office, DMO, September 30, 2020), most of which are owed to well-known international creditor agencies with which Nigeria has had a long history of dealing, like many other developing countries. In contrast, the bilateral loans which are owed to individual countries are of concern, and none is as worrisome as the unprecedented yet increasing sum of money owed to China which now stands at $3.3 billion or 80.1% of Nigeria’s bilateral debt load of $4.1 billion.”

While observing that the IMF had equally warned Nigeria of her increasing indebtedness to China, Ahmed said, “TURN’s evaluation of Chinese “investments” in Nigeria represents a sordid and unsustainable state of affairs that can in the end only hurt the Nigerian people. All loans from China are claimed to be on concessional terms according to the DMO. However, details of the loans are shrouded in secrecy and the demands of Nigeria’s Fiscal Responsibility Act, (FRA) for concessional loans have not been transparently met. The risks associated with the Chinese loans constitute clear, present and future danger despite the relatively small proportion of the loans to Nigeria’s overall debt.”