THE MOUNTING DEBT CHALLENGE
The rate of borrowing is excessive
Already battered by high levels of socio-economic stress, Nigeria’s ever rising debt portfolio is causing increasing anxiety. The debts have become huge liabilities, unsustainable and inimical to economic growth and development. Unfortunately, the authorities have continued to sneer at genuine concerns as the loans keep piling up, raising the spectre of another debt trap in future. Figures from the Debt Management Office (DMO) reveal that as of second quarter of 2020, the national debt stock increased by N2.38 trillion within three months. Between 2020 and 2021 the country’s public debt rose from N33 trillion to N40 trillion, about 20 per cent increase. Only recently, the Centre for the Promotion of Private Enterprise (CPPE) sounded the alarm that national debt, in addition to that of the Asset Management Corporation of Nigeria, and borrowings from the Central Bank of Nigeria, could soon hit N50 trillion. Expectedly, the federal government accounts for the bulk of the public debt, chalking up N33 trillion while the states ate up the rest.
To be sure, the amount borrowed is still within the limits set by the World Bank for debt to Gross Domestic Product (GDP) ratio. But same cannot be said of the amount being used to service the debts. Nigeria has a poor revenue base, and still dwindling ruinously, despite the current spike in oil prices because of the war between Russia and Ukraine. Nigeria’s revenue to GDP is a meagre 9 per cent, one of the poorest on the continent. Ghana, a little above Lagos in population, in comparison raises 13 percent. Meanwhile, debt service to revenue has been on an upward swing: from 21.2 per cent in 2011 to 51.9 per cent in 2015. In 2016, the amount jumped to 86.6 per cent and by the first quarter of 2020 it had hit 99 per cent.
According to the International Monetary Fund (IMF), Nigeria spent 86 per cent of its revenue on servicing debt in 2021, leaving little room to do anything else tangible. The high rate charged by investors for servicing debt is attributed to the country’s risky economic environment. South Africa’s total debt of $261 billion for instance, almost thrice that of Nigeria at the same period, attracted a 20 per cent debt service.
While borrowing could be healthy for the economy as it may help to ramp up vital infrastructure for economic growth and development, there is little evidence on ground that the funds are being properly utilised. Over the years, the federal and states governments had accumulated huge debts at public expense which were largely frittered away. That revenues which would have been used for human development are channelled to debt servicing and payback is a serious cause for concern.
Many believe that Nigeria does not need to borrow if the leakages and the propensity to siphon public funds in the ministries, departments, and agencies (MDAs) are eliminated. The instant case of the suspended Accountant-General of the Federation (AGF), Ahmed Idris over alleged N80 billion fraud and another involving the former Managing Director of the Niger Delta Development Commission (NDDC), Nsima Ekere to the tune of N47 billion are clear pointers to the rot within.
In its 2020 Macroeconomic Outlook, the Nigerian Economic Summit Group (NESG) stated that Nigeria’s mounting debt profile was a major concern despite the country’s $900 billion worth of dead capital in property and agricultural lands. While borrowing may be inevitable, especially at a period like this, there are serious concerns at the rate these debts are being piled up. Aside the fact that the funds are not being deployed into projects that generate income, borrowing should not be done in such a way to mortgage the future of the country and its sovereignty.