Finance minister’s gaffe on debts

RECENTLY, the Minister of Finance, Mrs Zainab Ahmed, gave impetus to the widely held view that the Muhammadu Buhari administration sets little store by the feelings of Nigerians. Speaking during a meeting with management staff of the Ministry of Budget and National Planning in Abuja, the minister declared that despite the misgivings amongst experts over the country’s rising debt profile, the country did not actually have a debt problem. Decrying what she termed ‘insensitivity’ over the country’s debt situation, Ahmed said: “I want to restate that our debt is not too high; what we have is a revenue problem. Our debt is still very much within a reasonable fiscal limit. In fact, amongst our comparative countries, we are the least in terms of borrowing.”

To say the least, the Finance Minister’s justification of the country’s blatantly unhealthy borrowing is whimsical, hollow and insensitive. Even non-economists know that, as the old saying goes, you cut your coat according to your cloth. The world over, there is a relationship between borrowing and revenue base. In other words, debt should be a function of revenue. Just why would anyone say that Nigeria’s problem is not debt when it is spending more than two thirds of its revenue to service debts? Now, if you say that the real issue is revenue, just where will that revenue come from? And when revenue comes into government purse, is it supposed to be expended on debt servicing? Is the International Monetary Fund (IMF), which has warned that the country’s spate of borrowing would leave its future imperiled, ignorant? Is the Finance Minister unaware of the statistics from the Debt Management Office showing that Nigeria’s external debt commitment rose by $11.77 billion in three years, from $10.32bn in June 2015 to $22.08 billion as of June 30, 2018, growing by 114.05 per cent in just three years?

It is already a given that the Federal Government will continue to commit close to 90 per cent of its net spend on recurrent expenditure, meaning that for every naira that it spends, only 10 kobo will go towards any kind of capital expenditure. This means, as we have already noted, that between basically servicing its humongous foreign and local debts (currently estimated at nearly N17 trillion), paying salaries and other associated running costs, the government has little wiggle room for long-term planning and vital developmental projects. Indeed, members of the eighth Senate had, while discussing the 2019 budget, expressed concern about the rising level of the country’s debt, describing the rising debt profile as alarming and unhealthy for the economy.

According to the senators, the government’s borrowing plans to fund the N1.86trn budget deficit, which constituted 1.3 per cent of the nation’s Gross Domestic Product,  was too high. Now if this administration again needs any reminding, Nigeria was removed from the shackles of the debt burden in 2006 through a US$18 billion debt buyback arrangement that saw it pay over US$12 billion to the London and Paris clubs under the President Olusegun Obasanjo government. As we have noted time and again, under the debt burden, Nigeria was forced to adopt austerity measures culminating in a structural adjustment programme (SAP) that significantly weakened the capacity for service delivery and social protection. State legitimacy was eroded even as the struggle over the shrinking resources of the state intensified. Ethnic and other divisions in the society deepened, leading to the outbreaks of intergroup violence which has characterised social and political life in Nigeria since then. In any case, prominent Nigerians like the Deputy Secretary-General of the United Nations, Mrs Amina Mohammed, and a former Deputy Governor of the Central Bank of Nigeria, Professor Kingsley Moghalu, have at various times described Nigeria’s rising debt burden as worrisome.

To say that Nigeria’s Debt-to-Gross Domestic Product remains low at 19 per cent and that this makes it safe to borrow is to ignore the fact that for a developing country like Nigeria, what matters is the debt service-to-revenue ratio. Those going to the extent of comparing Nigeria’s borrowing with the United States’ ignore the fact that it is the largest economy in the world, and that most countries of the world keep their foreign assets in US securities. If this government persists in its belief that it is safe to borrow, it will only keep piling up debts from which future generations may never recover. Debt peonage has never been known to be a blessing. Sadly, with the kind of mindset evident in the Finance Minister’s pronouncement, there is no glimmer of hope on the horizon.