Financial experts, economists worry over Nigeria’s rising debt profile

In its bid to fund the estimated N2.15 trillion deficit in the 2020 budget, the Federal Government has entered into negotiation with the World Bank for a fresh loan of $2.5 billion.

If the negotiation is favourable and the request granted, it will shoot the nation’s foreign debts to $28.1 billion, while the domestic debt stands at $55.6billion, a total of $83 billion.

The country’s rising debt profile has ceaselessly riled economists and financial experts who have consistently expressed perplexity over the Federal Government’s seeming uncontrollable appetite for loans.

According to Dr Vincent Nwani, an investment and business analyst, the news of the government seeking a concessionary loan from the World Bank came as a shock.

He said, “This is coming at a time when many people think the nation’s debt is already getting too high. These loans are not without implications. One of the implications is that given the current level of the nation’s external reserves, we will need twice the size of our external reserves to offset the debts. Another implication is that going by the total revenue earned by the country yearly, we will need our total revenue for between seven and nine years to pay off our debts. This shows how bad the situation is.”

Painting a more graphic illustration of the situation, Nwani said, “We are borrowing to maintain the current generation. We are borrowing to pay salaries, to pay pensions and to pay hospital bills. The implication of this is that any child born in Nigeria today will inherit about N100 million debt due to no fault of his, but because of how we have managed our economy. On the other hand, any child born in Norway today inherits $100 million asset because of the reserve.”

Nwani, who wondered why the government has to embark on the new borrowing spree, said, “It is worrying that the government is thinking of taking the new loan at a time there is an increase in revenue. Now, oil price has gone up as a result of the attack on the Saudi Arabia oil facilities.

Similarly, the government just announced its intention of increasing Value Added Tax (VAT) by 50 per cent. It is estimated that additional revenue of about N1 trillion will be earned through that alone. Similarly, from January next year, there will be VAT on online transactions, which is also estimated to generate additional revenue of N500 billion. Therefore, it is difficult to see the justification for this new borrowing.”

On what the government should to raise revenue, Nwani urged the government to be more creative with the management of the nation’s assets.

He said, “The model used for the NLNG (Nigerian Liquefied Natural Gas) should be replicated in managing other assets. That model fetches the nation over a billion dollars every year. Whenever I see the Federal Secretariat Complex, Ikoyi that has been abandoned since 1991, I wonder why the government would allow such asset to waste away. The asset should be put to good use to generate revenue. What are the prisons doing in the middle of the city? What are the barracks doing in the middle of the town? The United Kingdom is relocating its barracks away from the city centre to create opportunity for real estate development. The government needs to bring creativity into the management of assets to create new wealth.”

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Speaking in a similar vein, Professor Festus Epetimehin, Dean, Faculty of Business Administration, Joseph Ayo Babalola University, Ikeji Arakeji, Osun State, questioned the government’s rationale for amassing debts. While noting that borrowing to build revenue-generating infrastructure is a good idea, he condemned the government’s attitude of borrowing for consumption.

His words, “We have seen in this country an unprecedented rise in debt without a corresponding increase in infrastructure.

“What has been accomplished with the over N7 trillion debt that has been amassed in about four years? Where are the new roads? Where are the new airports? Where are the new hospitals? Where are the projects that would generate funds with which the loans would be repaid?

“The government should work hard to reduce external and internal borrowings because these are some of the factors militating against the economy.

“Without the government reducing the debt profile, not only will Nigerians be poor now, they will also be poor in the future because future revenues are already pledged to debt repayment.”

Dr Austin Nweze, a lecturer at the Lagos Business School, also frowned at borrowing to fund consumption.

Nweze, in an interview with Sunday Tribune, said the World Bank recommends that a country’s debt stock should not exceed 40 per cent of its Gross Domestic Product (GDP), adding that Nigeria had yet to hit that mark.

He said, “Why is the government borrowing? Is it borrowing to implement the budget or borrowing to pay salaries? Our debt stock is not being used for productive activities but they are being used for consumption.

“No country can survive when it borrows to consume. Iceland borrowed to finance ICT. Today that project has paid back the debt. Spain borrowed to fund infrastructure in some parts of the country. Today, the project is paying back the debt. But when we borrow here, the bulk of the money ends up in private pockets.”

The economist added, “Our children have a huge debt overhang, they are likely to spend their lives paying debts of their parents. Some of our leaders are myopic; they do not think about the effect of these debts on the coming generations.

“High debt profile is undermining development of Nigeria. You end up paying much more than you borrowed on interest alone. The money that should have been deployed to developmental projects will now be used to pay just interest. If borrowing is for production, it is good but if it is consumption, it is disastrous.”

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