Nigeria’s total debt profile could exceed N70 trillion by next year as the country grapples with dwindling revenues caused by revenue leakages and systemic decline in key sectors of the economy.
Experts at the weekend said Nigeria risked falling farther off the cliff into a worse debt trap unless major measures are taken to bolster revenues, improve public sector efficiency and redirect new debts to visible high-impact projects that could boost overall economic performance.
Nigeria’s rising domestic and foreign loan rose to N41.6 trillion in first quarter of the year. The debts comprised new domestic borrowing by the Federal Government to partly finance the deficit in the 2022 Appropriation Act, the $1.25 billion Eurobond issued in March and disbursements by multilateral and bilateral lenders.
Debt service payment rose by 109 per cent to N896 billion in the first quarter of the year compared to N429 billion in the last quarter of 2021.
Chief Executive Officer, Centre for Promotion of Private Enterprise, Dr. Muda Yusuf, said there was a need for a reconsideration of teh government’s new borrowing proposal, describing the plan as a “not well-thought out option”.
According to him, when borrowings from the Central Bank of Nigeria (CBN) and the stock of AMCON debt are included in the national debt stock, Nigeria’s debt profile could be in excess of N70 trillion by the end of next year.
“The new borrowing proposal would worsen an already bad debt situation. Already, debt service has exceeded government revenue, going by the financial report of the Federal Government as at April, this year. “We are already at a debt threshold that is not sustainable. The economy is on the verge of bankruptcy. The deepening of the debt crisis could crystallise the bankruptcy risk. Elevated debt burden should be avoided as much as possible,” Yusuf said.
Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, said rising subsidy payments and low oil production levels will continue to dwindle revenue despite the current oil price rally, prompting the government to borrow much more than earlier planned.
According to him, given the rising global interest rate, debt servicing will become more expensive, potentially keeping the country on a fiscal cliff.
The International Monetary Fund (IMF) warned that, by 2026, debt servicing might take 100 per cent of Federal Government revenue if it failed to implement adequate measures to improve revenue generation.
Director-General, Debt Management Office (DMO), Ms. Patience Oniha said the nation’s debt profile would continue to rise as long as the nation is not able to generate enough revenue to fund the annual budget.
Oniha told the House of Representatives Committee on Finance on the Medium Term Expenditure Framework and Fiscal Strategy Paper, that the nation’s debt stock at the end of last March at N41.6 trillion ($100.06 billion).
Yusuf said the government’s actual revenue could hardly cover the debt service obligations, which implies that the entire capital budget, recurrent expenditure and part of the debt service would have to be funded from borrowing.
“This is surely not sustainable. It is a looming debt trap,” Yusuf said.
He said what was needed was the political will to cut expenditure and undertake reforms that could scale down the size of the government, reduce governance cost and ease the fiscal burden on government.
“The naughty issue of fuel subsidy needs to be addressed. We have to take steps to gradually exit from the subsidy regime, if we do not want the economy to collapse, adding that it is necessary to scale down the size of the government and cost of governance,” Yusuf said.
In the transport sector, Nigeria took a whopping $500 million loan from the Chinese Export Import Bank to build five international airport terminals in Lagos, Abuja, Port Harcourt , Kano and Enugu.
How to repay this loan is fuelling anxiety in the government circles, with some experts warning that Nigeria may face the fate of some countries, which include Uganda, which is on the verge of losing its major international airport to China.
National President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ide Udeagbala noted the need for the legislative and executive arms of the government to take urgent steps to reverse the trend of increasing public debt and declining economic growth.
Udeagbala expressed fears that Nigeria’s debt levels had become worrisome because of their far-reaching implications for economic growth and development, especially against the backdrop of the International Monetary Fund (IMF) projection that by 2026, all of Nigeria’s revenue would go into servicing debts.
Describing Nigeria’s levels of debt service payments as “considerably high and unsustainable,” given the prevailing dwindling government revenues, Udeagbala warned of “a looming macro-economic instability if the trend of continued rising debt without corresponding revenue increase remaine”.
He underscored the severity and implications of the nation’s loan-taking binge by alluding to the on-going Sri Lankan economic crisis, which has been characterised by economic mismanagement, a rise in external debt, depleting foreign exchange reserves, a weakened currency and rising prices.
According to him, although there are differences between Nigeria’s and Sri Lanka’s economies with respect to population and national output, the Sri Lanka experience provides a view to the kind of macro-economic instability that economic experts and analysts are concerned about and its causes.
He added that Nigeria’s strategy of funding increasing government recurrent expenditure through public debt and the introduction of new taxes only provide short-term benefits in exchange for long-term negative impact.
NACCIMA, once more, counsels all levels of government, especially the legislative and the executive branch to take a broader and longer view on the implications of this debt-fuelled economic growth approach.
“There is need to look to other sources of funding, such as a preference for an increased tax base over increased taxes, and leveraging investments through public-private-partnerships in exchange for tax credits spread over time, “ Udeagbala said.