Many Nigerians are fidgeting over Nigeria’s rising debt profile. They recall how endemic debt to the Bretton Woods institutions in the decades before the return of democracy in 1999 stifled the country’s development when a huge chunk of the country’s income went to servicing the accumulated debts, leaving little for economic development. So, it was a huge relief to many when the Obasanjo administration struck the debt buyback deal that exited the country from the shackles of the Bretton Woods institutions.
The expectation was that, henceforth, the country’s earnings would be invested in the county’s development rather than using them to pay interests accruing on the debts.
Those who are raising the alarm now about Nigeria’s extensive borrowing believe the country is threading a familiar path and would soon be caught in another debt trap.
As of June 2021, Nigeria’s total debt stock stood at N35.5 trillion, with local debts taking the bigger share of N21 trillion. By the end of the third quarter of 2021, the figure had risen to N38.005trillion, according to the Debt Management Office (DMO).
And according to the 2022 Appropriation Bill, the federal government is looking at increasing its debt portfolio by another N6 trillion this year to finance the 2022 budget of which it hopes to spend N3.9 trillion in servicing its outstanding obligations both locally and externally from the N17.13 trillion budget.
Over the past five years, the country has spent $5.2 billion to service its external debt and N13 trillion for its domestic debt.
Experts Worry Over Nigeria’s N3.8trn Debt Servicing In 2022
In 2021 alone, N4.20 trillion was spent on debt servicing, higher than the N3.40 trillion expended on capital projects in the same year.
There have been concerns about Nigeria’s rising debt profile especially debt service-to-revenue ratio as well as foreign exchange liquidity constraints, both of which have been exacerbated by the COVID-19 pandemic.
The federal government has justified its borrowings by arguing that it was taking loans within acceptable limits – that with the debt-to-GDP ratio of 35 per cent in 2021, Nigeria’s debt is sustainable. The minister of finance, Zainab Ahmed, who has been making this argument, has consistently insisted that Nigeria does not have a debt problem, but rather a revenue problem. In a nutshell, Nigeria is not earning enough income to meet its obligations. She is right on the second count, but economists have faulted her on the first. They argue that servicing debts with upwards of 80 percent of the country’s national income is not healthy.
In fact, the debt service-to-revenue ratio was as much as 97.7 per cent from January to May 2021. At these figures, the country’s public debt profile is unhealthy, no matter whatever the government says. Nigeria, indeed, has a debt problem.
No less a person than the president of the African Development Bank (AfDB), Dr Akinwunmi Adesina, in October 2021 expressed worry about Nigeria’s debt servicing.
Speaking at the Mid-Term Ministerial Performance Review retreat in Abuja, Adesina agreed with the finance minister that Nigeria’s debt-to-GDP ratio was considerably moderate at 35 percent, but he said the big issue is how to service the debt and what that would mean for resources for domestic investments needed to spur faster economic growth. He added that the situation leaves Nigeria’s economy in a vulnerable situation.
He declared that the debt service-to-revenue ratio for Nigeria was high at the moment and that for the country to have an economic resurgence, it would need to diversify the country’s streams of income away from oil into non-oil inflows. Adesina is right. Unfortunately, all the administrations that have come into office since 1999 have always stressed the need to diversify the economy in order to expand the nation’s income base to meet the development needs of a growing population but none has succeeded in doing much in that regard.
Also worrisome is that the loans do not seem to be invested in ventures that have the capacity to service and repay the loans at the expiry of their tenors.
As a newspaper, we wish to align with those who argue that government should be looking at debt-to-revenue ratio rather that debt-to-GDP; afterall, nobody repays loans with GDP. Rather, it is revenue that is used to both service debts and repay the capital. And if the country is spending as much as 70 to 80 percent its annual revenue to just service the loans, then the county is indeed walking into a debt trap. If nothing urgent is done to reverse the situation, then soon Nigeria would be borrowing to service debts and leaving little to cater for the needs of the citizens.
Nigeria must review its borrowing, develop other streams of income, cut down on wastes and do more to stifle graft. Above all, the country must have security to provide the fertile ground for the economy to rebound.