The Minister of Finance, Budget and National Planning, Zainab Ahmed, last week affirmed that there was nothing to worry about the nation’s current debt portfolio. According to the Debt Management Office (DMO), Nigeria’s domestic and external debt stock stood at N25.7trillion or $83.88billion as at June 30, 2019. This comprised debts owed by the Federal Government, the 36 states and the Federal Capital Territory (FCT). Of this amount, the states and FCT owe N4trillion in domestic debts. Amid concerns that Nigeria is approaching a debt crisis as servicing the huge debts could cripple the implementation of government’s projects, the Finance Minister insists that the country is still within the recommended threshold of borrowing. She avers that Nigeria has only borrowed 20 per cent of her Gross Domestic Product (GDP), while an economy of Nigeria’s size can borrow between 50 and 55 per cent of the GDP.
The minister contends that the problem of Nigeria has more to do with revenue generation than debt crisis. However, we believe that the nation’s problem is both. The country is in huge debt as well as struggling with revenue generation. The government’s borrowing binge is quite unsustainable. It will cost the government much money to service the debts. More worrisome is the fact that the federal government’s collectible revenue is far below the projected target. For instance, government could only achieve 58 per cent of its half year projected revenue for 2019.
With the nation’s spiraling debt profile, there is need to avoid sliding into another debt crisis. The nation’s debt profile rose from N24.95trillion to N25.7trillion in the last three months. In 2018, it was N22.38trillion.
Between April and June, Nigeria’s obligations rose by N750 billion and increased by N3.32trillion when compared with the debt figures released by the DMO as at June, 2018. However, government has also paid over N800bilion for servicing the multiple obligations, which cut across domestic and external borrowings in the first half of this year. Of the N25.7trillion debt stock, domestic debts are N17.38trillion. Out of this amount; federal government’s debts constitute about 75 per cent. These include FGN Bonds, N9.69trillion, Nigerian Treasury Bills, N2.65trilion, Promissory Notes, N708bilion, FGN Suki, N200billion, Nigerian Treasury Bonds, N126billion, Green Bond, N26billion, and FGN Savings Bond, N10.4billion.
The external components of the debt include multilateral deals worth $12.7billion, bilateral loans, $3.3billion and commercial deal, $11.2billion. Nigeria is currently indebted to the World Bank Group, China and Eurobond, with over $23billion outstanding claims. With the deficit plans in the 2019 budget, Nigeria’s total debt stock could reach N27trillion by the end of the year. While N2.4trilion has been earmarked for debt servicing in the 2020 budget, the government says it will finance the budget with borrowing from domestic and external markets. This may lead to unsustainable debts.
Besides, the borrowing at the state level, where the total domestic stock is N4trilion, is worrisome. Many of the states cannot survive without federal allocations. Only 18 states are reportedly solvent. The debt profile of the states includes the over N600billion bailout fund the Federal Government gave them in 2016. Sadly, the states are even struggling to repay the bailout.
Without doubt, the nation is facing financial crisis, a fact the government will always deny. While there is nothing wrong with borrowing, there is need to invest the loan in the productive sectors of the economy. We enjoin the federal and state governments to diversify the economy and generate more revenue for development. However, this should not be done at the expense of the well-being of the impoverished and overtaxed people. There is need to control government’s borrowing. Available figures show that most of the states have exceeded 50 per cent of their revenues through borrowing. It is obvious that without the monthly allocations from Abuja, it will be difficult for most states to survive.
In spite of the argument that Nigeria’s debt-to-GDP ratio is still within the borrowing limit, the Federal Government should heed the advice of the IMF and World Bank and cut down excessive borrowing. It should also put more investments in the productive sectors of the economy. The National Assembly should give approval for loans that will stimulate economic growth and development while unsustainable borrowings must be discouraged.