Examining Nigeria’s Rising Debt Profile

Muhammadu Buhari

Jonathan Eze writes on the federal government’s rising debts

Some economists and multilateral organisations such as the International Monetary Fund (IMF) have consistently cautioned the federal government, over its rising debt profile.
According to them, the rising debt service cost may have a negative effect on the economy in the long-run.
Also worrying is the fact that many of the states are also saddled with huge debt burden.

In 18 states, their debt profiles exceeded their statutory revenue by more than 200 per cent.
But the federal government has maintained that the country has the capacity to repay its debt obligations.
However, stakeholders who spoke with THISDAY said they have nothing against the federal government or indeed the states borrowing externally or from the capital market as this is the standard practice world over. The aim of borrowing is to help the government to attain their developmental needs in the areas of infrastructure, health, education, power and transportation.

But it is one thing to raise these funds and it is another thing to ensure accountability and judicious use, they stated.
In the light of this development, the Lagos Chamber of Commerce and Industry (LCCI) recently held a forum to discuss the country’s debt burden.
The Debt Management Office (DMO) had put the country’s total debt stock (Federal and States) at N22.38trillion ($73.21 billion as at June 30, 2018.
The federal government recently raised another $2.86 billion through Eurobond issuance.

Hence, the LCCI, through its President, Mr. Babatunde Ruwase, is concerned about the rapid growth of public debt and the implication on the country’s fiscal sustainability, adding that the debt service to revenue ratio which currently stands at over 40 per cent is on the high side with the implication on the country’s capacity to deliver infrastructure investment.
Ruwase, stated this at the forum organised on Nigeria’s debt sustainability.

He said: “It is an opportunity to review the debt situation, identify key implications of the rising debt stock and offer needed solutions. Our revenue can barely cover our recurrent expenditure and that is why many state governments are still grappling with huge debt service burden and it is impeding on the deliverables of vital developmental projects.”
According to him, many states depend largely on the federal government grants and allocations to survive and pay salaries.
The LCCI boss further stressed that 70 per cent of total revenue in the country is for debt service.

“Certainly, we need to look at what we are spending on. We are not actually investing and this has grave implications for the future.”
Ruwase urged government officials to cut cost at the leadership levels.
In the same vein, the Managing Director and Chief Executive Officer of Financial Derivatives Company, Mr. Bismarck Rewane, said Nigeria has been sentenced to an inter-generational debt. He decried that Nigeria is in a debt trap of borrowing in repetitive cycle.

He also noted that while the country’s debt has continued to rise, its productivity has been on the decline.
He said the country’s debt burden was reducing its productivity. According to him, if the debt is increasing and productivity reduces then there is need to structure the existing debt and move directionally.
“How many bridges, roads, refineries and airports were built with the debt procured?” he asked. He however, said that the country’s debt has affected the increase of the minimum wage by the federal government.

Also speaking at the forum, the partner, KPMG Nigeria, Mr. Oyelami Adegoke, said Nigeria is a mono-economy which is largely dependent on crude oil. He said there is competition in renewable energy, “so what is the future of oil?”
He added that the cost of transporting goods from the port has multiplied with linkages in the port revenue.

He said the way forward is to seek for debt forgiveness.
According to Adejuwon, Kehinde David, et al (2010), in “Debt Burden and Nigerian Development,” a Journal of Business and Organisational Development, Volume 2, governments borrow to fill the vacuum created by the fiscal gaps in the proposed expenditure and expected revenue within a fiscal period.

“If government does not want to compromise macroeconomic stability by printing more money and if government taxation capability is limited, then debt option becomes the only available avenue that the government can explore to provide social overhead capital for the citizenry,
“However, borrowing should be channelled to meaningful economic activities, government should borrow to finance capital project and not recurrent expenses. In order words, government should not borrow for consumption purpose.
“The increasing fiscal deficits driven by the higher level of debt servicing is a major threat to growth of Nigeria economy and the resultant effect of large accumulation of debt exposes the nation to high debt burden.

“Nigeria is about the richest nation on the continent of Africa, yet due to the numerous macro-economic problems, such as inflation, unemployment, mono product (sole dependency on crude oil as a major source of revenue), corruption and mounting debt service payment, majority of her citizen fall below the poverty line of one dollar per day,” they added.

The Director in charge of Africa at the IMF, Mr. Abebe Selassie, recently listed the challenges to growth in Africa and said the countries’ debts were rising unsustainably, posing threats to their ability to deploy funds for economic development.
He also said one of the consequences of the rising debt was that countries’ resources were being channelled to debt service rather than investment into growth enablers.
Selassie advised that not only should the debts be moderated, but also that revenue generation should improve to address a weak debt servicing ratio to GDP and tax-to-GDP ratio.