Indiscriminate borrowing has become a serious threat to the economy
Nigeria’s rising debt profile is increasingly raising serious concerns. The foremost global financial institution, the World Bank, revealed in its latest report that the country used 96.3 per cent of its revenue generated in 2022 to service debt, saying that the constant fiscal deficit has aggravated the nation’s public debt stock.“The fiscal position deteriorated,” the bank noted. “In 2022, the cost of the petrol subsidy increased from 0.7 per cent to 2.3 per cent GDP. Low non-oil revenues and high-interest payments compounded fiscal pressures. The fiscal deficit was estimated at 5.0 per cent of GDP in 2022, breaching the stipulated limit for federal fiscal deficit of 3 per cent.”
Besides, the bank observed that the cash scarcity created by the Central Bank of Nigeria’s naira redesign policy hindered the country’s economic growth and poverty reduction efforts, adding that about 13 million Nigerians would become poor between 2019 and 2025. “Nigeria is in a more fragile position than before the late 2021 global oil price boom,” the report stated.
Even though the World Bank latest data on the country’s economic indices are frightening, they are certainly not new. Many financial institutions including the International Monetary Fund (IMF) and others at home had persistently sounded the alarm about the worsening economic environment. The Lagos Chamber of Commerce and Industry had expressed anxiety over the country’s mounting debt and rise in the debt-to-GDP ratio to 22.47 per cent by December 2021. The Centre for the Promotion of Private Enterprise (CPPE) in its 2022 report warned that Nigeria’s national debt, including that of the Asset Management Corporation of Nigeria, and borrowings from the Central Bank of Nigeria, would soon hit N50 trillion, with the government already spending 90 per cent of its entire revenue in servicing debts.
Indeed, governance without management is a viral affliction that has come to affect both the federal government and the states in recent times. The 2018 introduction of the World Bank assisted States Fiscal Transparency and Accountability Programme (SFTAS) was to nudge sub-national governments into imbibing fiscal transparency and tame their appetite for indiscriminate borrowing. Unfortunately, the programme has not worked. If anything, recent statistics from the Debt Management Office (DMO) present disturbing signals that just as the government at the centre goes on a borrowing binge, the states are also neck-deep in debt accumulation. Available reports indicate that no fewer than 28-state governors who are re-elected or leaving office in May 29, as well as the Minister of the Federal Capital Territory (FCT) had, as of 30th September 2022, piled up about N5.36 trillion in sub-national domestic debts.
Unfortunately, whenever the government is confronted with the danger inherent in continuous borrowing, the federal government always claims that Nigeria’s debt-to-GDP ratio is one of the lowest in the world. But borrowing is only sustainable when the revenue generation is high. Nigeria has a revenue problem, complicated with a bulging population.
The critical challenge is in lack of prudence at practically all levels of government. There is no conscious effort to cut down on expenditure either by the federal government or by the 36 states. To compound the challenge, transparency and accountability in ministries, departments, and agencies (MDAs) are at the nadir as official corruption is high. The annual audit report from the Office of the Auditor General for the Federation is very instructive.
In the face of dwindling oil revenue, the only sure source of revenue is to end the regime of petrol subsidy, a product for which some $7.2bn had been budgeted for the first six months of this year. But its removal too will come at a huge cost: High cost of living among a people many of whom are already living in penury.