The disclosure by the Federal Government that it is spending a huge amount of money to service the nation’s rising debt is disturbing. The Minister of Finance, Budget and National Planning, Zainab Ahmed, raised the alarm last week during the presentation of the details of the 2022 Appropriation Act that was signed by President Muhammadu Buhari on December 31, 2021. She specifically stated that government spent N4.2trillion on debt servicing between January and November last year.
The amount translates to 76.2 per cent of the total revenue of N5.51trillion generated within the same period under review. Currently, Nigeria debt stock, according to data from the Debt Management Office (DMO) as of November 2021, was N38trillion, and it is projected to reach N50trillion by the end of 2023. The minister also pointed out that oil revenue contributed N970.3billion to the total revenue generated within the same period, while non-oil tax contributed N1.6trilion. Other revenue sources contributed N2.8trillion.
The contribution from oil revenue represented 53 per cent of the performance of the prorated sum in the 2021 budget, while that of non-oil tax revenue was 118 per cent over the projected target. On the expenditure side, the government spent N12.56trillion out of the N13.57trillion from January-November 2021. A hefty deficit of N7.1trillion was incurred within the same period. Arising from the foregoing, it is obvious that the economy is on a cliffhanger. International financial institutions had warned us about the precarious economic situation. But it is apparent that the government is not heeding their advice.
For instance, in November 2021 Edition of “Nigeria Development Update,” the World Bank warned that Nigeria’s debt was “vulnerable and costly.” However, it also stressed that Nigeria’s debt would remain sustainable albeit vulnerable and costly, especially due to large and growing financing from the Central Bank of Nigeria. The global bank further noted that while the country’s debt stock of 27 per cent of the GDP is considered sustainable, any macro-fiscal shock can push the debt to unsustainable level. That, indeed, is worrisome. Economic experts have also expressed the urgent need for government to put a lid on borrowings. We hasten to add that if the government must borrow, it should do so cautiously and spend prudently.
Clearly, Nigeria’s debt is huge and the cost of servicing it is also rising. As World Bank data has shown, our total stock of debt in absolute value has doubled in recent years. For instance, from N18.89trillion in 2015, it rose by 100 per cent in 2021 to N38trillion. In real terms, the danger lurking is that without any realistic policy change, the nation’s debt stock will reach an all-time high of 40 per cent of the GDP in the next three years, according to latest World Bank forecast. That will be extremely dangerous. We, therefore, share with the Bank’s concern on the need to check the nation’s rising debt. No doubt, our debt situation has disrupted public investment and critical delivery spending in the country. Foreign Direct Investment (FDI) has dropped significantly. The festering insecurity has affected the ease of doing business. The amount spent on debt servicing is crowding out other critical public investments that will impact positively on development and the welfare of the citizens.
Currently, interest costs have risen above two per cent of the GDP since 2018, reaching 2.4 per cent of the GDP in 2019. This has resulted in government resorting to overdrafts, otherwise known as Ways & Means financing from the CBN to meet cash shortfalls and other contractual obligations. At the end of 2020, Ways & Means financing was N13.1trillion, or 8.5 per cent of the GDP.
There is an ongoing effort by the government to negotiate loan terms with the CBN to convert the stock of overdraft financing into long-term debt instruments, which will lower the cost of debt for the government and enhance fiscal sustainability over the medium long-term. This is only a relief measure. It does not put the economy on sustainable growth and recovery as long as the borrowing binge continues.
From all indications, Nigeria’s economy does not look promising. Recent figures from the Debt Management Office (DMO) showed that in the first nine months of last year, N2.48trillion was spent on debt servicing. Out of this amount, N612.72bilion was spent on domestic debt servicing, and N410.83billion on external debt from January to March. From April to June, $299 million was spent on external debt servicing and N322.7billion on domestic debt servicing, while from July to September 2021, N808.49billion was spent on domestic debt and $520million on external debt.
With poor investments, low revenue, all of which threaten Nigeria’s economic growth, government must need to think out of the box and put the economy on the path of growth. It needs active partnership arrangements with the private sector. Above all, let the government heed the advice of economic experts.