With the national debt put at over N33 trillion and N1.02 trillion spent on debt servicing in the first Quarter of 2021, the Federal Government should heed the advice by experts on how it can avert another debt crisis. Two eminent Nigerians, the Director-General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala, and former Finance Minister, President of the African Development Bank (AfDB), Dr. Akinwunmi Adesina and the Governor of the Central Bank of Egypt (CBE), Tarek Amer, had expressed concern over the increasing national debts in most African countries, especially in Nigeria, where the experts fear the debt burden could reach an all-time high of N40 trillion by the year end, with a high risk of Nigeria falling into another debt trap.
Their warning came at the recent AfDB Group’s 2021 Annual Meeting. Also, they advised African leaders to be creative by exploring other funding options that will rev up revenues for their countries. Besides, the experts also warned that with debt servicing becoming a major burden, it is no longer fashionable to ask for debt relief as this may not lead to economic growth. For Nigeria and other African countries, the failure to heed the warning could be catastrophic for their economies. This is because African countries’ debt-to-GDP ratio had ballooned during the COVID-19 pandemic, exacerbated by the fall in oil prices in the international market.
Specifically for Nigeria, rising debt holds a lot of unsavory lessons for the economy. This is a bad omen we have repeatedly cautioned the government about; amid the current borrowing binge. There should be full transparency on debt and its management. While we are not against borrowing, we advise that loans should be prioritised and used productively. This is necessary because financial stability is vital to averting the looming debt crisis.
There is no doubt that the present rising public debt is escalating poverty in the country. As the World Bank recently said in its report on Nigeria, rising debt and food prices pushed about seven million Nigerians into poverty in 2020. Currently, Nigerian’s debt portfolio, according to the Debt Management Office (DMO), has exceeded N33trillion. The debt expenses for the period represent about 30.7 per cent of the total N3.5 trillion budgeted for debt service for the year. This implies that every Nigerian currently owes about N157,906 in terms of debt per capita out of the N33.6 trillion public debt. The DMO recently disclosed that loans from China accounts for N3.7 billion. The government also reportedly borrowed N1.3trillion in four years to finance fuel subsidy. This is unhealthy for the economy.
The government should listen to advice by experts to borrow cautiously and spend prudently. We disagree with the Senate President, Ahmad Lawan, who, in response to the warning from Okonjo-Iweala and Adesina, said that Nigeria “is poor,” and therefore, the “only option is to borrow.” There are other better options than borrowing excessively to manage the economy. It is obvious that a lot of money has been spent on public office holders. The economy can no longer accommodate such profligate spending. Government must drastically cut the rising cost of governance. This will help to free revenue for other productive sectors of the economy and avert the looming debt overhang.
Beyond that, Nigeria’s dwindling revenue remains a major factor militating against debt sustainability and development of the economy. The misapplication of some of the loans has led the government to borrow to fund the budget. The other day, President Buhari asked the National Assembly to approve a supplementary budget of N800billion. The government had already spent about 83 per cent of its revenue in 2020. The total revenue earned last year stood at N3.93trilion, while the amount spent on debt service was N3.26trillion.
Worse still, Nigeria recorded a 99 percent debt service-to- revenue ratio in the first quarter (Q1) of 2020, having recorded retained revenue of N950.56billion, and incurred N943.12billion in debt service. Even the projected debt service ratio of 46.9 per cent for 2021 looks unattainable, unless oil price rises far above the budget benchmark. According to the 2021 budget, N7.99trillion was projected for the year. This indicates a budget deficit of N5.6trillion. Again, this is expected to be funded by borrowing from domestic and external sources, as well as proceeds from privatisation estimated at N205bilion. Already, domestic debt constitutes N20.8trilion of the public debt, while foreign debt stands at N12.5trilion.
Overall, we urge the government to be mindful of the unpleasant consequences of accumulating debt. It should learn from past mistakes. Since Nigeria exited from the the London/Paris club of creditors in 2006, the way forward is to exercise extreme caution in borrowing to avoid plunging the country into another debt distress that future generation may be burdened with.