IN the last five years or more,Nigeria’s debt profile has been rising instead of shrinking.But government is telling us little or nothing about the far reaching implications on our economy and what it entails for our future. This much is however clear: Unchecked debt burden can have negative profound consequences, not just for the present but for the future.It could hamper change which is the mantra that brought President Muhammadu Buhari to power.
Currently,about 25 percent of the Federal Government annual budget is earmarked for debt servicing.The budget deficit now stands at N2.2 trillion. And, from 2013-2015, N2.08trn was reportedly spent for debt services. With all this happening at these hard times of economic recession, portends uncertainties for Nigerians who are already experiencing difficulty times.
Last week, the Director General, Debt Management Office(DMO),Dr.Abraham Nwankwo confirmed our fears when he said that Nigeria’s debt profile has reached a new height of N12 trillion. This figure includes domestic and external debts.The debt ratio is 13 percent of the Gross Domestic Product. The profile also includes loans taken by both the federal and state governments, including the Federal Capital Territory.
While the domestic debts constitute 86 percent of the total debt stock,external loans make up 14 percent. When domestic debt seems to be spiraling out of control as the DMO statistics suggest, it raises a red flag of some sort: Nigeria beware!
Taken together, the debts owed by the states and the FCT represent about 33 percent of the total external debt and 16 percent of the domestic debt while the rest is owed by the federal government.
Although the DMO boss has assured that Nigeria “is not at risk”, and “no cause for alarm”, we know that in his heart, he knows that a country in deep recession as Nigeriia is today, such assurance is not assuring. It is disturbing, never mind that our borrowing pattern is still within the global threshold of 40 percent of our GDP.
But looking closely,there is a disturbing trend that the national debt is telling us.Though the 2016 budget is still mired in controversy between the Presidency and the National Assembly, the fiscal estimate shows that government plans to borrow N900bn and N984bn, respectively as external and internal loans. Which could be why the troublesome governor of Ekiti State,
Ayodele Fayose last week wrote the Chinese government to stop a $2bn loan reportedly being sought by the Federal Government. President Buhari has just come back from a week-long official visit to China. Government said it made some deals,among them a $6bn infrastructure fund.
It may also be cheering that government says it has rejected a loan from the International Monetary Fund(IMF).However, the bigger picture is that Nigeria is already highly indebted. The mounting debts at the state level is even more troubling. Not that anything is wrong with borrowing,the disturbing picture is that government at all levels are not fiscally disciplined. They borrow recklessly and spend recklessly when prudent spending ought to be the watch word.
For instance,in the last three years, states with the highest loan portfolio are Lagos, Cross Rivers, Rivers, Ogun, Ekiti and Kaduna States.Each of these states has taken more than $100m external loan. The five states account for about 50 percent of the total debts incurred by the 36 states and the FCT.
The bad news is that except Lagos and Rivers, the rest don’t have enough financial muscle to repay the loans without putting their states in debt overhang. Few of them have good Internally Generated Revenue profile. A recent statistics from the National Bureau of Statistics show that Lagos IGR for 2015 was N262.82bn, Rivers N82bn, Delta N40bn.
The current rising debt profile, coming ten years after the Paris Club exit in 2006,reveals a sheaf of economic anxiety and a defining challenge to the managers of the economy, and the need to borrow cautiously and spend prudently.
Our economy stands overexposed to risks inherent in deep debt portfolio,especially market and liquidity risks if government does not curtail its perchant for unbridled borrowing and reckless spending on unproductive projects. The debt profile and the projected debt service ratio have not impacted meaningfully on the socio-economic development of the country and the well-being of the citizenry.
For instance,in 2013,, N591.76bn was reportedly spent in servicing part of the debt,while N712bn,N684bn and N684bn,were earmarked for debt services in 2014,2015 and 2016 fiscal years..Consequently, the fiscal deficit is expected to rise slightly to 1.9 percent of the nation’s Gross Domestic Product(GDP).
Part of the concerns about the present national debt is that over the years, Nigerians have not seen adequate monitoring and supervision in the administration of the loans taken, many of which were sourced from international financial institutions such as the World Bank, Africa Development Bank,China
Export-Import Bank, among others. Since 2007, the domestic debt has increased so much, increasing from 36.61 percent to 88.74 percent at present.This trend comes with the potential risk of Nigeria becoming insolvent. When national debt escalates,the ability of the country to repay is threatened.
Over all, the current debt profile is a warning for all hands to be on deck. A report by the Fiscal Responsibility Commission(FRC) shows that nine states in the country over-borrowed in 2011. They have not stopped. And our national debt continues to rise.
A new thinking on our borrowing and spending plans is what the rising national debt is telling us. Over to you, Mr.President.