Nigeria’s debt profile which now stands at N21.73 trillion from N12.2 trillion in June 2015 has risen too rapidly raising fears amongst concerned stakeholders that such development doesn’t bodes well for an economy still struggling, reports Ibrahim Apekhade Yusuf
Finally, the word is out, Nigeria faces a debt crisis which has the tendency to further weaken the already troubled economy. This is the verdict of the World Bank. The warning, coming from the Bretton Woods institution is not cheap propaganda after all.
Red alert over Nigeria’s debt crisis
Specifically, the World Bank has raised the alarm over rising debts in African countries, including Nigeria. Releasing ‘Africa’s Pulse’, a biannual analysis of African economies in Washington last Wednesday, the World Bank’s Chief Economist Africa, Albert Zeufack; Lead Economist, Africa, Punam Chuhan-Pole; and Research Manager, Michael Toman, said the continent had been showing positive growth but warned that its debt was increasing in at a very high rate.
Chuhan-Pole said although Nigeria’s debt remained low going by the debt to Gross Domestic Product (GDP) ratio, interest payment had been high.
“Interest payment as a share of government revenue is quite high. It raises issue of sustainability,” she stated.
Generally on the continent, she said, “The rate at which countries are accumulating debts is very high. Our countries need to pay attention to the rate at which debts are rising.”
The World Bank team spoke to journalists across African countries through video conference.
According to the team, the rising debt is led by some oil exporting nations, including Nigeria which have seen more than 50 per cent rise in debts recently.
Zeufack stated that the problem of Africa’s debt was not concessional loans secured from the World Bank, but commercial loans that countries in the region had gone ahead to secure.
According to him, such commercial loans come with exchange rate risks, global financial condition risks and commodity price risks.
A window into Nigeria’s debt profile
The Debt Management Office recently put Nigeria’s debt profile at N21.73 trillion as of December 31, 2017, up from N12.2 trillion as of June 30, 2015.
The federal government had spent a total of N3.72tn to service local debt in the past three years while N1.48 trillion was spent on debt servicing in 2017.
With a total of N1.23 trillion and N1.02 trillion spent in 2016 and 2015, respectively, on domestic debt servicing, these add to a total of N3.72 trillion spent on domestic debt servicing in the last three years.
According to the World Bank, sub-Saharan Africa’s growth is projected to reach 3.1 per cent in 2018, and to average 3.6 per cent in 2019 to 2020.
The growth forecasts are premised on expectations that oil and metals prices will remain stable and that governments in the region will implement reforms to address macroeconomic imbalances and boost investment.
Anxiety by concerned stakeholders
Last year, foremost political economist, lawyer and former United Nations official, Professor Kingsley Moghalu said Nigeria’s rising debt burden was worrisome, especially when history shows that reliance on foreign loans have failed to contribute to the economic growth and development of the country.
Speaking at an event, the former Deputy Governor of the Central Bank of Nigeria advocated for a more efficient, effective and innovative fiscal management of Nigeria’s needs, arguing that state and federal governments should generate revenue internally.
“The federal government recently requested the approval of a $5.5 billion foreign loan from the National Assembly, but when you consider that more than sixty percent of revenues earned in Nigeria already goes into debt servicing, the country is clearly moving into dangerous territory,” he said. While emphasising the importance of policy readjustments in Nigeria, Professor Moghalu stated that when countries continue to borrow, there is very little left to fund services and development, which in turn affects important social infrastructure such as health and education.
Addressing the argument that Nigeria’s Debt-to-Gross Domestic Product remains low at 19 percent which makes it safer to borrow more, the financial expert called it shallow thinking. He said that for a developing country like Nigeria, what matters is the debt service- to-revenue ratio, which what should concern every Nigeria. This also builds on the recent red flag raised by the International Monetary Fund (IMF), which reiterated that debt servicing costs were becoming a burden on Nigeria, as the international body pointed out that the debt service costs gulped about 66 percent of government’s revenue in 2017.
Also, one of the leading global rating agencies, Standard and Poor’s (S&P) recently cautioned the country about its rising debt profile, which has led to a rise in its debt service cost.
“General government debt-servicing costs as a percentage of revenues are high and have increased in recent years from below 10 per cent in 2014 to our projection of over 20 per cent on average, in 2018-2021.
“The central government alone has debt servicing costs of close to 50 per cent of revenues, which in our opinion, limits fiscal flexibility. The steep increase in the ratio is due to a combination of declining oil revenues since 2014 and higher borrowing costs in the domestic market,” the agency stated.
Nigeria’s external debt rose to $18.91 billion (N5.787 trillion) as at the end of December 2017, while domestic debt rose to N15.937 trillion, bringing the total debt stock of the country to N21.725 trillion ($70.92 billion), latest data released by the Debt Management Office (DMO) had shown.
Although relative to Gross Domestic Product (GDP), the country’s debt level remains low by global standards, but it has put a strain on government revenues due to associated high debt service cost
Available National Bureau of Statistics (NBS) data had revealed that over 90 per cent of government revenues were channelled toward debt servicing between January and June last year.
Pro-debt voices
According to the DMO, the $3 billion Eurobond issue used in refinancing maturing domestic debt resulted in an annual savings of about N81.66 billion in debt service as the Eurobond was secured at about seven percent interest rate, compared to about 15 or 16 per cent interest on domestic borrowings.
“In our view, the government’s strategy of refinancing local loans with increased foreign loans should ease pressure on revenues for as long as there is no depreciation of the naira, should there be a significant weakening of the naira against the dollar however, the country may find itself in a bad situation,” analysts at CSL Stockbrokers Limited stated.
Also, the Director, Portfolio Management, DMO, Dele Afolabi defended the increased foreign borrowing by the government, saying the funds were being utilised for infrastructure development.
In his argument, he explained: “Borrowing on its own is not a bad thing. Through borrowing, the country has been able to do a lot of things.
“We have finance infrastructure. So, to say we shouldn’t borrow, I don’t agree with that. You can borrow and use for developmental projects.
“Currently, we are refinancing domestic debts with external loans. We have brought down cost of domestic borrowing and ultimately the cost of servicing these debts will reduce.”
Strident voices against continuous debts
Expectedly, not many people are convinced that the country should literary continue its borrowing streak.
At separate interviews, a cross-section of respondents who spoke with our correspondent would rather the country pull the break as far as borrowing is concern.
Prof. Sheriffdeen Tella, a senior lecturer in the Department of Economics, Olabisi Onabanjo University, Ogun State, said a highly dependable government should run a balanced budget and avoid borrowing.
While noting that borrowing in itself is not a bad economic strategy, but the way in which such borrowing is used is very important.
“I’m not worried about borrowing because debt is leverage but it depends on what the loan is used for. It must be used for productive purposes and not to finance recurrent expenditure. Oil prices are just beginning to bounce back and so I see the borrowing as a last resort to prevent the total collapse of the economy since we had a serious revenue shortfall. When you have a decline in revenue, you have to resort to borrowing.”
The former Vice-Chancellor at Crescent University, Abeokuta, Ogun state, said the argument that the nation’s debt to GDP ratio is low hence the motivation to keep borrowing is a lazy argument.
“It’s a very worrisome development and we should not encourage it at all. My candid view is that the National Assembly should stop the federal government to continue to borrow. Because we have gone beyond the bounds, we should start thinking of how to begin to repay what we owe so that the debts burden and debt servicing will reduce ultimately from our budget.”
Echoing similar sentiments, Emmanuel Ado, a Kaduna-based public affairs analyst, said while borrowing in itself is not bad, the way most of states borrow should give all well-meaning Nigerians, a cause for concern.
“In other climes, they borrow to develop infrastructure and invest in projects that have long-lasting benefits for the people. In the case of our states here in Nigeria, the reverse is mostly the case here; they borrow to spend on white elephant projects most of which end up being abandoned midstream. Successive governments are guilty of this. We have had state governors that can hardly account for the money they borrowed especially money raised from bonds. Without naming names, we have had state governors who divested their state shareholdings from telecoms companies which could have by now provided an alternative source governors sold state owned stocks and today the Economic and Financial Crimes Commission is still trying to find out what happened to the money.”
