Considering Nigeria’s increasing revenue challenges, it is a welcome development that the World Bank and the International Monetary Fund (IMF) are working together to assess the country’s debt sustainability. This was disclosed by the President of the World Bank Group, David Malpass, at a press conference during the recent 2022 annual meetings of the global financial institutions in Washington DC, USA.

There is no doubt that the rising debt threatens the economy. A country’s debt is considered sustainable if the government is able to meet its current and future payment obligations without exceptional financial assistance or going into default. Nigeria’s total debt stock as of June 2022 stood at N42.84 trillion or $102billion, and it is projected to reach N50trillion by the end of next year. This is already raising fears of debt repayment default. Of this amount, 35 per cent accounts for external debt, while 65 per cent is domestic debt. According to the Central Bank of Nigeria Economic Report, Nigeria owes the World Bank, IMF and the African Development Bank (AfDB) $18.96billion as of March 2022. The amount accounts for 47.4 per cent of Nigeria’s public sector external debt stock.

However, the World Bank opines that it is up to Nigeria’s policymakers to interact with the multilateral creditors in assessing the country’s debt sustainability. The other day, the Minister of Finance, Budget and National Planning, Zainab Ahmed, acknowledged that the government was talking with the World Bank Group and the IMF to restructure the country’s debt. Nigeria’s debt had increased over the last three to four years. It is likely that the government may use 65 per cent of its revenue to service its rising debt. That Nigeria is in deep financial crisis is no longer debatable. President Muhammadu Buhari has admitted that much in recent months. Therefore, we urge the representatives of the government to cooperate with the World Bank, IMF, AfDB and others to assess Nigeria’s debt sustainability.

Also, the government must demonstrate enough political will to review our mounting debts with the global financial institutions and put the economy on the path of growth. Whether it means debt restructuring, which means getting a break on debt repayment or whatever remedial measure, what is important is to do the necessary things to revive the economy forthwith. Beyond the need to assess our debt sustainability, the government should find the best way to resolve the ballooning controversial subsidy payment, which the government has allocated N3.36trillion next year. Refining enough petroleum products for our domestic use can reduce the dependence on imported fuel as well as the corrupt subsidy regime.  Nigeria is already in a tight corner with a deficit of N5.33trillion between January and August, 2022. This is N430.82billion above the pro-rated level. A fiscal deficit occurs when government’s total expenditure exceeds the revenue that it generates, excluding borrowings. This has been the case with Nigeria for some years now as government is far behind in meeting its revenue target.

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The bulk of what is generated is spent on debt servicing. For example, the government spent a total of N9.56trillion from January to August, 2022 out of N11.55trillon prorata expenditure projected for the period. Projected fiscal deficit for the year is N7.53trillion, while the total expenditure projected for 2022 is N17.32trillion. Already, the level of borrowing in the 2022 budget was N1.26trillion ahead of August target. For the N20.51trillion 2023 budget proposed by President Buhari, government plans to borrow N8.80trillion and sell some key national assets to fund the budget, which has a deficit of N10.78trillion. If not well managed, Nigeria’s debt may become unsustainable.

Besides borrowing, the government is considering introducing more taxes to increase government’s revenue and limit its borrowings. The consequences of this action may be dire for businesses and the citizens.  Some of the problems, the World Bank says, include that the multiple exchange rate, restrictive trade policy and unfavorable business environment that discourages capital inflows into the economy. 

While we support the assessment of the nation’s debt sustainability, there is need for adequate security, exchange rate stability as part of a wider macroeconomic policy package to absorb internal and external pressures. We need pragmatic fiscal and monetary policies to rejuvenate the economy.