Owes $60bn as External Reserves rises to $27. 82bn
Omololu Ogunmade in Abuja
The Islamic Development Bank (IDB) on Tuesday described Nigeria as one of the few nations, which spend almost all their revenues to service debts, subsequently causing the economy to haemorrhage.
This came as the Chairman, Senate Committee on Foreign and Local Debts, Senator Shehu Sani, disclosed that Nigeria’s debt now stands at $60billion.
Already, President Muhammadu Buhari has budgeted N1.361 trillion to service debt this year as against N953.6 billion proposed in 2015.
The IDB, which made this revelation during its visit to Sani, said whereas the Gross Domestic Product (GDP) ratio of Nigeria’s debt was rated to be as low as 17 per cent, the revenues being deployed to service the debts were outrageous, rising to the tune of 80 per cent of the nation’s earnings.
According to IDB’s representative, Abdallah Mohammed Kiliaki, Nigeria stands the risk of running into economic stampede if it continues to deploy huge sums to service debts.
Abdullah who said the trend compelled his visit, advocated the need for Nigeria to urgently broaden the scope of its economy by diversifying to other areas with economic potentiall such as agriculture.
“My visit is very crucial because we need to look at the debt profile of a country before we give it new contractual sort of financing. We also work closely with the International Monetary Fund and the World Bank to ensure that our financing has the required threshold of grant financing which is normally 35 percent but at the same time, there is financing that is not a burden to a country to the extent that the debt may not be sustainable.
“When talking about unsustainable debt, it means that a country or a borrower is unable to pay. So, we take very serious note of that. When you look at the debt GDP ratio of Nigeria, it is very low, it is very low. It is 17 per cent compared to Italy and other countries which is about 150 per cent while that of the United States is about 100 per cent.
“But there is a caveat; it is true that debt to GDP ratio is low but when you look at the amount, the revenue, to debt servicing ratio, the amount of money that the government is collecting, the revenue of the government vis-a-vis the ratio to the total debt, I think Nigeria pays about 75 to 80 per cent of its revenue to service debt. So, this is very, very high compared to other countries where they use just 10 per cent.
“What this means is that one, the government of Nigeria needs to expand or mobilise additional resources through taxation by broadening the tax base but at the same time, we as lenders, financiers, we need to reconsider our conditions of financing meaning that we should try as much as we can, to extend to Nigeria, financing that will not make it difficult for the country to pay its debt.
“In a nutshell, as clearly shown by available financial records, Nigeria still has considerable leverage of taking loans from multilateral financial institutions for development or investments purposes going by her very encouraging low ratio of debts servicing to GDP but the factor of dwindling revenues being used to service the debts must be urgently looked into by way of possible expansion,” he said.
Responding, Sani said international banks and other multilateral financial institutions should stop encouraging Nigeria to keep borrowing in view of its low debt ratio servicing to GDP.
He said whereas the debt ratio to GDP put at 17 per cent may look good, it may subsequently cruise at 77 per cent if it continues unchecked and consequently bring the country back to its former place in 2006 before London and Paris clubs granted it debt forgiveness.
He said Nigeria’s total debt amounted to $60 billion out of which $10.6 billion is foreign loan. He promised that the committee would henceforth monitor every dime that every government borrows in Nigeria.
He said: “Available records have clearly shown that Nigeria’s total debt profile stands at $60billion out of which $10.6billion is from foreign loans. Borrowing should simply be a last option for any serious minded government and not just first option way out of problems at hand because we don’t need to overburden our next generations for repayment of needless loans taking before their time.”
Meanwhile, it was good news again yesterday from the Central Bank of Nigeria (CBN) with the rise of foreign reserves for four days consecutively – the first of such since President Muhammadu Buhari took office.
According to online news portal, The Cable, the reserves, which rose by $13 million on Tuesday February 22, have continued to blossom its way out of the 11-year low positions. The consecutive rise started on Thursday February 24, from $27.804 billion to $27.823 billion as at February 29, surging gradually through the days in-between. The rise has been attributed to a gradual recovery in oil prices and strict restrictions of capital flow.
The consecutive rise makes for the sixth daily rise in foreign exchange reserves in the last six months. After rising by $350 million in August 2015, the foreign reserves have not experienced any of such huge leaps in 6 months, with a meagre rise of $32 million in February 2016. Major restrictions have been put in place to curb excessive outflow of Nigeria’s foreign exchange, following fears that the reserves may be down to zero in 10 months.
Speaking at The Cable devaluation debate, Adams Oshiomhole, governor of Edo state said the nation’s forex outflows vastly outweighs inflow. “As we speak, I understand that our forex inflow is under $1 billion,” he said. “If you’re earning less than one billion, and your outflow remains at more than $4 billion, obviously, all other things being equal, I imagine that in one year, our foreign reserves would be zero”.
The measures taken to avert the foretold crisis include; ban on CBN forex sales for the 41 items and halting sales of forex to bureau de change operators. The position of the CBN and the federal government on forex has been fiercely criticised by many, who consider capital control as counter-productive.