Tackling Nigeria’s ballooning debt profile: No Time for lax interpretations

Nigeria’s debt profile

Many Nigerian economists and stakeholders have raised concerns over the nation’s huge debt stock and its effects on the fragile economy. Perhaps the recent report by the World Bank which placed Nigeria among the top 10 countries with the highest debt risk exposure is food for thought for the federal government.

By Goddy Ikeh

WHEN former President Olusegun Obasanjo in 2006 secured debt forgiveness of about $30 billion from the London and Paris clubs of foreign creditors by paying off $18 billion, little did Nigerians envisage that in less than two decades, the country will be plunged into what is generally perceived as the worst debt crisis in the history of the country.

Recently, the Debt Management Office, DMO, announced that the country’s public debt, which stood at N39.55 trillion as at September 2021, was now N41.6 trillion in 2022. The amount, according to report by the News Agency of Nigeria, NAN, represents the total external and domestic debts of the Federal Government, the 36 state governments and that of the Federal Capital Territory, FCT of Abuja.  The findings by NAN, however, revealed that the total debt stock would likely exceed N45 trillion before the end of this year as the DMO plans to borrow additional N6 trillion to finance the 2022 budget deficit.

The analysis by the DMO, according to the report, pegs the overall deficit in the 2022 budget at N6.30 trillion, representing 3.46 per cent of the country’s Gross Domestic Product (GDP). The breakdown of Nigeria’s public debt stock shows that 37.82 per cent is external, while the balance of 62.18 per cent is domestic.

However, with the country’s national debt in relation to Gross Domestic Product, GDP, ratio at 22.80 per cent, some analysts suggested that the debt situation was still within reasonable limits as a study conducted by the World Bank, showed that 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.

But the huge revenue that goes into debt servicing still remains an issue of concern for many Nigerians. For instance, the minister of finance, budget and national planning, Zainab Ahmed, said recently that between January and April this year, the country generated a revenue of N1.63 trillion, but spent N1.94 trillion on debt servicing.

And a recent report by Dataphyte stated that in its apparently effort to water down the growing anxiety over the nation’s ballooning debt profile, the DMO said that Nigeria was still within the total public debt stock to the Gross Domestic Product limit of 55 per cent set by the World Bank and 70 per cent set by the Economic Community of West African States, ECOWAS.

“Of course, with total public debt to GDP as at December 2021 standing at 22.47 per cent, the debt-to-GDP ratio still remains within Nigeria’s self-imposed limit of 40 per cent. The challenge, however, hasn’t always been about debt-to-GDP, but about debt-to-revenue concerns.

“In the revenue context, the nation is literally dancing on the cliff of fiscal collapse. When the nation’s revenue-to-debt servicing figures are placed under scrutiny, the result would make a mess of the often repeated claims in government that Nigeria does not have a debt problem, but that of revenue,” the report said.

On the issue of Debt-to-revenue, the report recalled that in the July 2021 budget implementation report presented by the finance minister, showed that the Nigerian government spent a total of N1.8 trillion on debt servicing in the first five months of 2021, representing about 98% of the total revenue generated in the same period!

“Within the period, total aggregate revenue generated by the government between January and May 2021 stood at N1.84 trillion, representing a shortfall of N1.48 trillion compared to the expected revenue of N3.32 trillion. Meanwhile, the nation’s debt servicing figures within the period stood at 37% of the total N4.86 trillion expended by the federal government, while N1.5 trillion was spent on personnel costs, pensions, and other overheads.

“More ominous were details of the Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP) report released by the Federal Ministry of Finance, Budget, and National Planning in May 2020, which showed that the nation’s debt service as a percentage of revenue rose to 99% in the first quarter of 2020,” the report said.

According to Dataphyte, the report, the MTEF/FSP report showed, for instance, that in Q1 2020, Nigeria incurred a total sum of N943.12 billion in debt service while the federal government retained revenue stood at N950.56 billion. “For clarity, what that implies is that for every N100 earned by the Nigerian government within that period, a whopping N99 went into debt servicing!

In effect, the nation was left with just N1 to plan, fix infrastructure, pay salaries, and attend to other fundamental obligations,” it said.

And when does a revenue problem become a debt problem, Dataphyte stated that for decades, the Nigerian government has maintained the banal claim that the nation does not have a debt problem, but that of revenue, while it continues on a borrowing binge. “But beyond dubious semantics, a revenue problem essentially becomes a debt problem when revenue projections fail and debt obligations aren’t met in the context of poor earnings.

“For clarity, we will return to the budget implementation report of H1 2022, as presented by the Minister of Finance, Budget & National Planning, Zainab Ahmed.

“In terms of revenue, within the five-month period, N1.49 trillion was realized from oil and gas, representing a 69% performance compared to the prorated N2.16 trillion,” it said.

It noted, however, the gross oil and gas revenue for 2021 was projected at N5.19 trillion. In essence, the government’s modest projections on revenue failed and affected the debt-related obligations.

“Since debts are often paid back with revenue and not “GDP”, the oft-repeated claim of assessing the nation’s fiscal condition on the basis of debt-to-GDP figures remains mendacious, to put it mildly.

“Worse still, the DMO said that the total debt stock of Nigeria is likely to reach N45 trillion by the end of the year as it plans to borrow an additional N6.39 trillion to finance the 2022 budget deficit. For an administration that met Nigeria’s combined debt figure at about N9.8 trillion in 2015, and has equally lamented that the nation does not benefit from the ongoing price rally in the global oil market due to production challenges and subsidy-related concessions, Nigeria sure has a huge—even if unacknowledged–debt problem,” Dataphyte concluded.

Apart from the report of Dataphyte, some Nigerian economists and stakeholders have expressed their concerns over the soaring debt. For instance Tope Fasua, an Economist, told NAN that the government would need to optimise revenue generation to cut down on borrowings. He urged the private sector to always cooperate with the government in its revenue drive rather than antagonizing such initiatives.

Fasua, however, disagreed with the DMO that Nigeria had a “revenue problem” and not a debt problem, while urging the government to get its expenditure priorities right. We have a debt problem, we have a revenue problem and we have an expenditure problem. Right now we are just borrowing anyhow. We even borrow to service previous borrowings,” the NAN report quoted Fasua as saying in its recent report.

Fasua urged the Federal Government to take concrete steps to boost its revenue generation so as to reduce budget deficits.

For Okechukwu Unegbu, a past President of the Chattered Institute of Bankers of Nigeria, CIBN, the huge deficit in the budget and the dependence on loans to fund it is unacceptable. He urged the government to look inwards by encouraging production and value addition to the various natural resources in the country, reduce importation and encourage consumption of locally made products. “Our debt servicing ratio is high; we are putting almost 70 per cent of our earnings on debt. This is worrisome,” he said in a recent interview with NAN.

In the same vein, the Lagos Chamber of Commerce and Industry, LCCI, deplored the “over-dependence” on borrowings by the federal government. In its recent report on the economy, the chamber said that staying within the current Debt-to-GDP threshold was an unreliable means of calibrating Nigeria’s current debt burden.

According to the LCCI, the government must review its borrowing parameters on the basis of the country’s Debt-to-Revenue ratio, which currently calls for concern.

A recent study by Premium Times showed that Nigeria’s public debt has risen the most under the present APC-led administration when compared to previous governments since 1999, with foreign debt growing three times more than the combined figures recorded by the past three administrations.

While the Obasanjo government met $28 billion as foreign debt in 1999, it left $2.11 billion in 2007 after successfully securing a write-off by the London and Paris clubs of foreign creditors. In addition, the Yar’adua/Jonathan government added $1.39 billion to what they met, and the Jonathan government incurred additional $3.8 billion, taking the country’s total foreign debt to $7.3 billion when that administration came to an end in 2015. But Nigeria’s external loan peaked at $28.57 billion by December 2020. And for the domestic debt, considered relatively less harmful to the value of Naira than foreign debt, the figure rose from N795 billion in 1999 when the Obasanjo government came to power, to N8.8 trillion in 2015 when the Buhari administration assumed office. By December 2020, Nigeria’s domestic debt stood at N16.02 trillion, twice as much the combined amount taken by the past three governments.

But in her usual manner of downplaying the growing anxiety over the nation’s debt crisis, Patience Oniha, director general of the DMO, stated that the borrowing by the government were essentially for capital expenditure and human capital development as specified in the Fiscal Responsibility Act 2007.

According to her, the level of insecurity in the country has also resulted to increased borrowings. And most importantly, “having witnessed two economic recessions, we have had to spend our ways out of recession, which contributed significantly to the growth in the public debt. It is unlikely that our recovery from each of the two recessions would have been as fast without the sustained government expenditure funded partly by debt.

“To compound matters, the country has technically been at war with the pervasive security challenges across the nation. This has necessitated massive expenditures on security equipment and operations, contributing to the fiscal deficit. Defence and security sector accounted for 22 per cent of the 2021 budget,’’ she added.

On the way forward, Oniha said that the most viable solution to the country’s fiscal challenge was to grow more sources of revenue and plug all leakages. She believes that the country’s low revenue base and sole dependence on crude oil receipts have been primarily responsible for the debt situation. While maintaining her stance that the country does not really have a debt problem, but a revenue problem, she added that the government was already taking practical steps to improve revenue and reduce borrowings.


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