Stories by Merit Ibe
Nigeria’s fragile economy may be heading for another round of headwinds over Federal Government’s continuous borrowing to fund critical infrastructure, budget financing, amounting to its high debt servicing.
Members of the organised private sector have predicted that the country’s debt servicing could pose obstacles to the economy, as large part of its revenue is used to service debts.
Debt service for the year was put at N3.26 trillion which represents about 82.9 per cent of the total revenue gotten in 2020.
Analysis of rising debt under President Muhammadu Buhari shows that the public debt stock of the country has risen from N12.118 trillion in 2015 when President Buhari assumed office to N32.89 trillion in 2021. This represents over 160 per cent in- crease in public debt profile of the country.
Official figures from the Debt Management Office (DMO) shows that Nigeria’s debt grew from N12.118 trillion in May 2015 to N12.6 trillion in December 2015.
Major providers of these loans include the World Bank, International Monetary Fund (IMF), Chinese Exim Bank and the African Development Bank (AfDB).
Recently, the Federal Government sourced $3.4 billion loan from IMF, $2.5 billion loan from the World Bank, $1 billion loan from AfDB, as well as N850 billion domestic capital market loans among others.
Economists have insisted that the continuous borrowing by Nigeria was not good for the economy, going by the huge amount spent on servicing those debts, they also noted that Nigeria’s debt to revenue and debt to Gross Domestic Product (GDP) ratios are becoming unfavourable. The economists advised that Nigeria needs to be more proactive in public financial management as the economy is contracting and the country’s public debt profile is becoming unfavourable.
The OPS, which is the umbrella body of the country’s chambers of commerce, comprising Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Manufacturers Association of Nigeria Export Group (MANEG), Nigerian Association of Micro, Small and Medium Enterprises (NASME), Nigeria Employers Consultative Association (NECA) and Nigerian Association of Small Scale Industrialists (NASSI), predicted that the Federal Government would struggle to remit around N1.5 trillion for debt service in the first half of this year, which will be an insurmountable task, considering the battered economy by COVID-19 and is also expected to take large chunk of this year’s budget. Statistically, this figure translates to N1.21 trillion for H1’20 and N1.5 trillion for H1’21, making a total of N2.71 trillion. Nigeria’s debt servicing could gulp loans taken by the federal and state governments.
In addition, Nigeria was also recently denied and excluded from the list of 28 countries granted pardon by the executive board of the International Monetary Fund (IMF).
Attributing the reason for the rise to the harsh economic challenges caused by theCOVID-19pandemic,the DMO said the challenge has also forced advanced countries to increase their level of borrowing.
Nigeria’s public debt stock comprises that of Federal and state governments as well as the Federal Capital Territory.
The country’s inflation rate rose to 18.17 per cent in March 2021, from the 17.33 per cent recorded in the previous month, according to the National Bureau of Statistics (NBS), indicating that the country hasn’t had it this bad in the last four years as the figure remains its worst inflation figures.
In the same vein, unemployment reached 33 per cent in the last quarter of 2020, putting the country among the highest in the world.
Adding to current concerns, the Federal Government had also indicated interest to sell some critical national assets to fund its budget.
It also plans to borrow from dormant bank accounts through the provisions of the Finance Act 2020.
A member of the OPS and also a former Director-General of NACCIMA, Dr. John Isemede, raised the alarm that Nigeria could not sustain the debt servicing any longer, considering the crisis the economy is facing. Isemede admitted that government paying over N1 trillion for debt servicing on the current N34 trillion could spell doom for the economy. He added that paying around N1 trillion for servicing meant that for every N1, Nigeria is paying 80 kobo for debt servicing.
On the country’s rising debt profile, the former NACCIMA DG put the blame at the door step of government, saying it was inappropriate to borrow money for salaries and at the same time give bailout to states for salary payments
Isemede, an exporter, said: “The figure is not sustainable looking at the current happenings in our economy. And very soon, salaries of workers and others will not be paid and this will give birth to sack of workers. From the figure now, it is showing that about 82 per cent to 85 per cent of our currency (naira) is tied to debt servicing. That is, for every N1 about 80 kobo is meant for debt service payment; which country can sustain that?
“We are not saying this because we are not in government. We are all in government because this is our country and we all voted; whether you voted for the ruling party or not, we all have stake in this country. It is not sustainable. We have to block all the leakages and we have to borrow money for infrastructure and to build factories where people will work and pay taxes instead of looking for the easy way out.”
The Director-General, LCCI, Dr. Muda Yusuf, noted that the high level of debt servicing continues to hinder robust investments in hard and soft infrastructures which are key to stimulating productivity and improving living standards.
“The Chamber is deeply concerned about the country’s rising debt portfolio without corresponding impact on output growth and economic development.”
He lamented that the growing level of the country’s debt was fast becoming unsustainable in the light of dwindling oil prices and production. “Our position is reinforced by the uptrend in debt-service.”
Executive Secretary of Nigerian Association of Small and Medium Enterprises (NASME), Eke Ubiji, decried the high debt servicing, noting that loan servicing of such magnitude would take a lot, leaving less for development of the country.
The Federal Government has borrowed so much that the effect is so harsh in the economy.