Continuous borrowing: Nigeria in dire straits

For those expecting considerable economic reprieve for Nigeria and Nigerians in 2022, they are better advised to be more pragmatic. This is because, with an already scheduled N6.123trillion budget deficit in 2022, Nigeria is sure to continue on a borrowing binge.

The implication is that the Federal government will borrow more money both from internal and external sources to fill the financial gaps.
Already the government has accumulated a total debt stock of about N28 trillion in the last six years. According to the Debt Management office, Nigeria’s total debt stock stood at N38.004trillion in September 30, 2021 while the Medium Term Expenditure Framework (MTEF)has outlined that Nigeria will borrow a further N14.8 Trillion between 2022 and 2024. According to the document, the projected figure for 2022 stands at N4.89 Trillion. This is further broken into domestic borrowing of N2.44 Trillion and N2.44 Trillion for foreign borrowing.

Further details show that the borrowing schedule in the three years will increase the public debt of the country from the current figure of N38 Trillion to N52.8 Trillion by 2024 with total domestic debt at N29.91 trillion and total external debt at N23.05 Trillion. Figures on the document also revealed that between 2022 and 2024, Nigeria will spend N14.6 Trillion on debt servicing. This is broken down as; N3.6 Trillion in 2022, N4.9 Trillion in 2023, and N6.1 Trillion in 2024. Debt service figures will increase by 36.1% between 2022 and 2023 and by 24.4% in 2023 and 2024.

During the same period, the debt service to revenue ratio is projected at 43% in 2022, 48% in 2023, and 57% in 2024. Many worry however that these projections can only work on paper.
Experts explain that public debt is how much a country owes to lenders outside of itself. These can include individuals, businesses, and even other governments. The term “public debt” is often used interchangeably with the term sovereign debt.

Public debt according to them usually only refers to national debt. Some countries also include the debt owed by states, provinces, and municipalities. Therefore, it is important to be mindful when comparing public debt between countries to make sure the definitions are the same.

Nigeria’s ballooning debt profile has raised major concerns from various stakeholders. The last time Business Hallmark researched the subject it emerged that Nigeria already owed N38trillion ( $96.39billion) and nurses plans to borrow more. That is what the federal Government said at the time: FG feels convinced that since its debt-to-GDP ratio was still below 25% per cent, it still has a lot of room to accommodate more debts.

An expert who wouldn’t want to be mentioned said Governments tends to take on too much debt because the benefits make them popular with voters. Increasing the debt allows government leaders to increase spending without raising taxes. Investors usually measure the level of risk by comparing debt to a country’s total economic output, known as gross domestic product (GDP). The debt- to -GDP ratio gives an indication of how likely the country can pay off its debt.

There is a consensus that the level of debt that an economy can bear depends on numerous factors: the economy’s expected rate of economic growth; whether domestic or foreign borrowers, or domestic government institutions, own debt; the country’s fiscal capacity; inflationary expectations; currency risk; and default risk. While it easy to determine where Nigeria ranks in this parameter now given the new budget, both local and international communities are aware that the country economy is very weak in every standard measurement. However, Nigeria’s debt to Gross Domestic Product may look good, but analysts believe that the devil is in the details of debt to revenue and servicing.
Recently, President of the Senate, Dr. Ahmad Lawan, advised President Muhammadu Buhari to reduce borrowing from external lending houses to fund the country’s annual budgets. He said the administration should, instead, focus on blocking financial leakages and avoiding wastage in all tiers of government. Lawan declared these in Abuja in a chat with newsmen after a closed-door meeting with Buhari at the State House.

The senate president expressed a view that is centred on the need to take steps to increase revenue generation by government agencies and reduce dependence on external loans to fund the budget.

“So, if there are areas that we can now get revenues that will help us reduce the amount of borrowing, then, so be it. And this is something that we all agreed with Mr. President, that we should continue to look at those areas that we need to improve on revenue generation and collection.”

Chief Executive Officer, CEO, Financial Derivatives Company (FDC), Bismarck Rewane, who showed discomfort with the level of borrowing advised FG to adopt the model of project-specific borrowing, in order to guard against reckless borrowing and jeopardizing the economy.

‘’But having said that, the growth in the level of debt is something of concern because the debts are liabilities. You also have to focus on the assets. What are the assets that are being acquired? How much of it is for consumption and how much of it is for Gross Capital Formation,” he said.

‘’But the good news is that, the projection for our productivity or Gross Domestic Product (GDP) growth in 2022 is 3% higher, than the 2.5% for this year, and in 2023 the projection is 2.9%. So it means some projects, not necessarily because of this borrowing, some of the projects for which borrowing was done in the last two to three years will begin to have their impact on output and employment in 2022 and 2023,” Rewane had also said.

Dr. Ayo Teriba, an economist and Chief Executive Officer (CEO) Economic Associates (EA),had raised similar alarms last week, saying the country’s debt profile was not sustainable.

‘’It is not clear what we should make of the well established fact that interest payments on debt are perennially consuming nearly 100 per cent of revenue available to the Federal Government of Nigeria. There is currently no consensus on the way forward,’’ said Teriba.

Unfortunately, the debt trap is compounding the huge challenges of the country ranging from high unemployment at over 33%, unemployment at above 22%, the ravaging effect of Covid -19 pandemic which latest variant is Omicron.

These days almost everybody is aware that Nigeria is the poverty capital of the world, after overtaking India with over 100 million people in poverty. The Naira which sold at N220/$ in June 15, 2015 has depreciated by about 100 per cent to N565/$ this January 2022, while Foreign Direct Investment (-74.0% y/y to USD107.81 million) remained below its 12-quarter moving average (USD240.22 million).
The major revenue earner for the country, crude oil price, which has hit $75 pbd and above presently still fluctuates.

At the same time, insecurity has not only hobbled agriculture, many parts of Northern Nigeria have been taken over by bandits such that not much business activities can subsist. The World Bank just noted that Nigeria’s revenue to GDP ratio hovered between five and six per cent last year and remains the lowest in the world. It’s clearly a long climb to freedom and prosperity for Africa’s most populous nation and largest economy.