The Nigerian Economic Summit Group (NESG) and the Open Society Initiative for West Africa recently reported that Nigeria and 10 other members of Economic Community of West Africa States (ECOWAS) are in debt crisis has serious consequences for the affected countries. The worrisome aspect of the report is centred on debt sustainability that could have debilitating effect in the sub-region.
Apart from Nigeria, the 10 other countries on the debt risk list are Benin Republic, Burkina Faso, Cabo Verde, The Gambia, Ghana, Guinea Bissau, Liberia, Niger, Senegal and Togo. The report said any financial crisis in Nigeria resulting from debt risk, will have ripple effects in ECOWAS sub-region and threaten their economies. It averred that “the financial woes in Nigeria, in particular, portend a serious threat to other nations in the region.” However, the report revealed that four countries in the region – Côte d’Ivoire, Guinea, Mali and Sierra Leone – are at low risk of debt distress. It also points out that public debt accumulation in the region is unsustainable, and therefore, requires urgent measures to address it and avoid imminent debt crisis of unimaginable proportions. It cautioned ECOWAS countries to take the impending debt distress seriously to avoid a “lost decade of getting to a debt crisis where debt settlement will be the government’s only agenda for years to come.”
Clearly, the report by the NESG and Open Society Initiative for West Africa is a clarion call on Nigeria and other affected countries in West Africa to urgently rejig their economies. Although all the ECOWAS countries mentioned in the report are grappling with high debt service to revenue ratio, that of Nigeria has reached an alarming rate, just as its public debt stock has increased to N40trillion in 2021 from N32.92trillion in 2020, according to data from DMO. About N6.64trilion was borrowed in 2021, while N2.93trillion was spent on debt servicing payments in the same year.
Currently, the Federal Government is reported to be spending 95 per cent of its total revenue on debt services, and this is not sustaianble. In spite of this, the government is still on a borrowing binge. The implication is dire and calls for urgent action by the government to ameliorate the situation. Nigeria’s economic survival is doubtful and the future is bleak. For instance, in 2010, Nigeria’s Gross Domestic Product (GDP) was $351billion, while per capita was $2,250, debt stock at $40bilion, representing 14 per cent of GDP.
By 2020, Nigeria’s public debt profile had tripled, while the GDP grew by only 10 per cent, and per capita at $2,000. Ordinarily, nothing is wrong with borrowing, provided it is invested in viable projects capable of repaying the debt. Unfortunately, Nigeria has essentially been borrowing for consumption rather than for production and this threatens economic survival. Mismanagement of borrowed funds is partly why the country is at the crossroads, retrogressing instead of progressing. The country is likely to be haunted by financial profligacy and outright mismanagement of borrowed funds. As the NESG’s report and others have revealed, there are fears that Nigeria’s debt will soon become unsustainable. And its effect on private and public investments will spiral to other countries in the sub-region. This is probably why the World Bank and the International Monetary Fund (IMF) have, on many occasions, warned against the nation’s penchant for borrowing.
And each time, the Federal Government will insist that Nigeria is still within the acceptable borrowing limits. But its argument on borrowing is no longer persuasive or convincing. The reality is that a situation where debt to revenue ratio is close to 100 per cent, that portends a potential debt crisis. To avoid the doomsday being predicted in the report, we enjoin the government to put a moratorium on borrowing. The era of borrowing for consumption is gone. For Nigeria and other affected ECOWAS countries to have economic rebound, and minimise their debts, they must quickly diversify their economies.
We don’t think that asking for debt cancellation by creditor-nations will solve the problem. Giving them debt forgiveness will only encourage other debtor nations to continue to borrow more. If countries should borrow, let them borrow cautiously and spend prudently. This is the time to cut the cost of governance and diversify the economy. Overhauling the non-oil export sector and improving the business environment by tackling insecurity will stimulate economic growth.
Nigeria and other affected West African countries must strive to make their nations attractive for foreign investors. We decry the poor inflow of foreign direct investment in Nigeria and other countries in the sub-region and urge their leaders to quickly change the situation.