Arguing Nigeria’s rising debt profile

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Buhari
Buhari

The assurance by the Debt Management Office that the country’s debt stock has not exceeded the 25 percent threshold of the federal government has not been able to allay the fears of Nigerians that the rising debt profile will not crumble the economy and impact negatively on their well being. However, what is more worrisome is the fact that Nigerians can hardly point to any meaningful projects that the loans have been used for

By Anayo Ezugwu

DESPITE the economic gains President Muhammadu Buhari claimed his administration has made, the economy may be in danger over the country’s rising debt profile. According to the Debt Management Office, DMO, the country’s total public debt rose to N24.94 trillion as of March 31, 2019 from N24.38 trillion as of December 31, 2018.

The debt grew marginally by 2.30 percent. A statement issued by the office on Wednesday, July 10 said the debt stock comprises domestic and external debts of the federal government, the 36 States and the Federal Capital Territory.

The breakdown shows that the debt, which rose by N560 billion was accounted for largely by domestic debt, which grew by N458.36 billion, while external debt also increased by N101.64 billion. The ratio of domestic to external debt stood at 68.49 percent to 31.51 percent at the end of March.

The total public debt to Gross Domestic Product ratio was 19.03 percent, which is within the 25 percent debt limit imposed by the government. The debt portfolio, which was obtained from the DMO website showed that the federal government presently owes N13.1 trillion domestically, while the states and the FCT owe N3.97 trillion. However, the external debt of the federal government, states and the FCT stood at N7.8 trillion.

The latest report from the DMO shows that Nigeria’s total debt stock rose by N12.58 trillion between June 2015 and March 2019. The country’s total debt stock as of the end of June 2015 was N12.36 trillion. This means that within a period of four years, the country’s total debt exposure rose by N12.58 trillion. In terms of percentage increase, the country’s total debt rose by 50.44 percent within the period.

One of the major implications of the nation’s rising debt profile is the increasing burden of interest payment. The federal government budgeted N2.25 trillion for debt servicing in the 2019 budget, which means that the nation will spend 24.3 percent of the entire N8.91 trillion budgets on debt servicing.

Patience Oniha
Patience Oniha

It is noteworthy to say that debt servicing in itself is not a problem, but the accumulation of such debt. Paying outstanding debt also improves the credibility of the country and increases the confidence of contractors and creditors to invest in the country. However, the means by which the debts were accumulated could defeat the essence of the debt servicing.

Every country borrows; Nigeria’s biggest challenge is what the government does with the borrowed money. If the money is invested in productive projects, then it will be possible to pay back borrowed funds. There must be discipline, checks and balances if government desires to borrow.

The government must think of how to invest in productive infrastructure and revamping the agriculture sector, if not the economy will continue to struggle. This is especially true as the country has been making less money than before as a result of the fall in crude oil price. In fact, the country’s debt sustainability has become an issue of debate as some experts have argued that Nigeria’s indebtedness is no longer sustainable.

The argument is that with reduced capacity to earn money, the country’s ability to service debt and repay the principal has been impacted. This, the arguments goes, has rendered the nation’s debt unsustainable even though the total debt to Gross Domestic Product ratio is still low.

But President Buhari in his stewardship account in 2018 highlighted his achievements on the economy, infrastructure and human capital development. The government said N12.7 trillion was spent on infrastructure in 2016 and 2017 and that it extended more than N1.9 trillion to state governments, to enable them meet their salary and pension obligations.

The support, it said, was in the form of Budget Support Facility (Total of N606.55 billion extended to the states as of May 2018; in exchange for reforms in budgeting, IGR, debt management, overheads, etc.) Others are Paris Club refunds, infrastructure loans as well as loan restructuring for facilities with commercial banks. It stated that it spent the following amounts on critical infrastructure development as of May 2018: transport (N127 billion), agriculture and water (N130 billion), power, works and housing (N325 billion).

Realnews investigations showed that most of the loans taken by this administration was for investments in power sector, railways, roads, agriculture, housing, aviation and social investment programmes like school feeding and N-Power programmes.

Despite the explanation by the federal government, experts and indeed many Nigerians believe that there is no enough evidence to justify the amount of money borrowed so far by Buhari-led administration. Austin Nweze, lecturer, Pan-Atlantic University, Lagos, and economic analyst, warned that the rising debt profile is a dangerous trend. He said the trend is not good for the nation’s economy.

Nweze expressed fear that most of the money borrowed by this administration might have been diverted to fund 2019 elections. According to him, the nation has not seen where these monies are going. “This government has been a freewheeler when it comes to borrowing. There is nothing wrong in borrowing, but when you borrow to consume, it is dangerous. Consume in terms of paying salary and maintenance. We should borrow to build infrastructures.

Yemi Osinbajo
Yemi Osinbajo

“We have to really understand the geo-politics of borrowing. What these countries do is to make cheap loans available to you and you collect it knowing that African nations not just Nigeria are gullible. Once you offer them cheap loans they fall for it. The Chinese are doing it and it is giving them access to where they are not supposed to have access to, the same thing with the western nations.

“That is just the thing because if you understand the politics of loan you will know as a leader that there is no free money anywhere. They come with conditions you may not be able to meet. The problem is that most of the money they are borrowing now would go for debt servicing.

“So it keeps piling and at the end of the day, the children unborn will have between N1.5 trillion and N3 trillion debts on their neck. If they keep on going the way they are going, there will be problem in the future. When you borrow and do not invest it, it has a way of making nonsense of the purpose for borrowing the money in the first place. What they are saying is that as long as we remain in power, we will keep borrowing to have fun and enjoy ourselves. The attitude is that any other person coming in should pay the debt since it is a sovereign debt and not a personal debt, so they don’t even care or understand the implications,” he said.

Samuel Nzekwe, former president, Association of National Accountants of Nigeria, ANAN, advised the federal government to check the rising debt profile of the country. He said it would be difficult to finance capital and recurrent expenditure when using more than a quarter of the revenue generated to service debt.

He urged the government to be cautious in accumulating more debts, saying investors’ confidence may be eroded. “We need investors to invest in Nigeria so that they can create employment and galvanise productivity as well as more receipts from foreign exchange. A huge debt profile would also affect exchange rate between Nigeria and other countries as our currency would start depreciating,” he said.

Ayodeji Ebo, managing director, Afrinvest Securities Limited, says that what the country spends on servicing its debt is worrisome. He noted that if the government continues at the present state, it would not be able to meet its debt obligations. Stating that the government needs to look at the areas where it is channeling the funds from its borrowings, he advised them to channel the borrowing into productive areas.

Austin Nweze
Austin Nweze

“If they (government) continue to go at this rate, not channeling the funds into productive areas, then very soon, our revenue will not be able to cover our debt.  For instance, if we borrow N1 trillion and we use it on 20 to 30 projects that will contribute about 20 to 30 percent and you get private sector to contribute the rest, that project will be able to repay that loan based on the agreement that they will have and as such, in terms of the multiplier effect, will provide infrastructure for the populace. Then in the long run, we will be able to generate income that will be able to repay the loan.

“But if we continue on this route, that we want to be funding all the projects with debt 100 percent – fund railway 100 percent, roads 100 percent, then there is no way that those projects will be able to repay the loan. So they need to rethink the strategy in terms of how they monitor the project it is used to fund,” he said.

As the discussion over the recent surge in debt profile continues, the country’s debt is fast rising and could approach unsustainable level given the low revenue and export profiles. Unless Buhari and his incoming economic managers do something different, the country may go bankruptcy before the end of this administration. Nigerians are watching.

– July 19, 2019 @ 17:49 GMT |

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