More economic woes loom over mounting debt

With a British court on Friday ruling that Nigeria should pay $9 billion (N3.24 trillion) to Process and Industrial Developments Ltd. (P&ID) for failing to honour a contract, Nigeria’s debt profile has spiraled to N28.187 trillion.

Although, the government has expressed its desire to appeal the ruling, unless it is overturned, P&ID will seize some of the nation’s assets to offset the debt.

But according to experts, the nation’s mounting debts, will only hasten the collapse of infrastructure, health and education.

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The nation’s debt profile has been on the rise in recent times. The Debt Management Office (DMO) announced in July that the nation’s total debt stock stood at N24.947 trillion as of March 31, 2019, which was a N560 billion increase over the N24.34 trillion figure of December 31, 2018.

The DMO had explained that the debt stock comprised domestic and external debts of the Federal Government, the 36 states and the Federal Capital Territory.

Explaining the N560 billion increase, the agency said it was due to a hike in domestic debt by N458.36 billion and external debt by N101.64 billion.

The nation’s debt profile, which currently stands at N28.187 trillion, was as low as $3.51 billion (N527 billion) in 2006 after the debt cancellation championed by the administration of Chief Olusegun Obasanjo, which saw the nation’s debt cascade from $40 billion.

However, the debt stock, which has been on the upward trend since 2008, hit N7,554,258,000,000 by December 31, 2012. It rose to N7,532,283,520,000 by the end of March 2013 and N7,928,554,310,000 by June 30, 2013. By the end of September 2013, it rose to N8,320,054,280,000, got to N10,044,198,820,000 by December 31, 2013 and hit N10,162,342,830,000 by March 31, 2014.

The debt profile climbed up to N22,707,203,790,000 by the end of March 2018, hit N22,379,666,270,000 by June 30, 2018, became N22,428,802,940,000 by the end of September 2018 and plateaued at N24,387,071,740,000 by December 31, 2018.

Although the Federal Government has scaled down its domestic borrowings to guard against crowding out the private sector from accessing funds from banks, it has escalated its external borrowings. Nigeria has increased its indebtedness to the Peoples Republic of China since 2015 as it currently owes China about $8 billion.

However, the DMO is of the view that the nation’s debt profile is still within manageable limits. It said, “The total public debt to Gross Domestic Product (GDP) ratio was 19.03 per cent, which is within the 25 per cent debt limit imposed by the government.”

But in spite of the assurance given by the DMO, many Nigerians are worried that allocation to debt servicing has been on the rise since 2016. In the 2016 budget, N1.48 trillion was allocated to debt servicing. In 2017, it was N1.84 trillion, N2.014 trillion in 2018 and went up to N2.09 trillion.

This fear was confirmed by the World Bank in its ‘Africa’s Pulse’, a biannual analysis of African economies published recently in Washington, United States. According to the Bretton Woods institution, although the country’s debt was low going by the debt to Gross Domestic Product ratio, interest payment had been high.

Commenting on this, World Bank’s Lead Economist for Africa, Punam Chuhan-Pole, said, “Interest payment as a share of government revenue is quite high. It raises issue of sustainability.”

The International Monetary Fund (IMF) also considers the rising debt and the increasing budgetary allocation to debt servicing as unhealthy for the economy.

According to Vitor Gaspar, IMFs Director of Fiscal Affairs Department, while speaking at the World Bank/ International Monetary Fund Spring Meetings in April 2017, Nigeria spends 66 per cent of its tax revenue on debt servicing.

President of the African Development Bank (AfDB) and former Agriculture and Rural Development Minister, Dr Akinwumi Adesina, also expressed concern over Nigeria’s huge indebtedness. According to him, Nigeria currently expends 50 per cent of its revenue on debt servicing.

Former governor of the Central Bank of Nigeria (CBN), who is currently the Emir of Kano, Alhaji Muhammadu Sanusi, also said the nation expends 66 per cent of its total revenue on debt servicing, leaving it with just 34 per cent for both capital and recurrent expenditure.

Similarly, the CBN, at the end of its Monetary Policy Committee (MPC) meeting in January this year, called on the Federal Government to apply the brakes on its debt piling up spree, warning that unless that was done, the country’s debt burden might rise up to the pre-2005 Paris Club level.

Not too long ago, the Deputy Secretary-General of the United Nations, Mrs. Amina Mohammed, condemned the country’s seeming uncontrollable appetite for foreign debts.

Mrs Mohammed, who served as Minister of Environment in President Muhammadu Buhari’s first term before bagging the UN job, said Nigeria was steadily returning to its unwholesome past of heavy debt overhang, lamenting that while former Finance Minister, Ngozi Okonjo-Iweala, freed the country from a huge debt burden, the current leaders are accumulating debts.

Professor Kingsley Moghalu, a former Deputy Governor of the Central Bank of Nigeria (CBN), said that racking up debts by the country would only end in a sorry tale as history had revealed that reliance on foreign loans had not contributed to the growth of the nation’s economy.

Also speaking on the issue, Professor Adeola Adenikinju, Director, Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan, said, “The consequence of these debts is that many of the things government ought to do, government will be incapable of doing. The consequence of some of these debts is that there will be collapsed infrastructure; the state of health, education and other social infrastructure will get worse.”

He added, “When we take a new debt, it sounds good on paper that the new debt will be spent on projects but the question is: how do we ensure that the rate of return from some of these projects will be sufficient to be able to make the rental income so that they do not add up to the debt that we already have? I think we have issue of ensuring discipline and compliance with laws available because there are laws that guide debts but somehow we ignore some of these things. On paper, when we go out to present our budgets we can form the threshold but we do not have a feedback as to what has really happened at the end of the budget year.”