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Fresh anxiety over Nigeria’s rising debt



…analysts raise doubts over long term economic stability


Nigeria seems to have dug itself into another debt hole and the federal government is desperate for a way of escape which does not appear to be in sight. Rising debt stock and declining revenue has created a fiscal dilemma and mismatch that leaves the country with few options.

Experts had been warning over the nations debt but the government showed aloofness to such concerns until last week when the Finance Minister, Mrs. Zainab Ahmed officially confirmed that the nation is broke. This came shortly after the World Bank warned that Nigeria is living dangerously on borrowing and food importation.

The payment of the minimum wage agreed with worker before the election has become the worse dilemma of the government as its implementation could raise personnel cost by 60 percent.

World Bank had stated that Nigeria is living on borrowed time as it continues to make financially irresponsible decisions as regards food importation. The World Bank said this is affecting local farmers and increasing unemployment and forcing the country to more borrowings.

The statement made by the Senior Agricultural Economist of World Bank, Adetunji Oredipe, at the agriculture summit Africa in Abuja. Oredipe said Nigeria has risen to become one of the largest importers of food in the world despite its resources.

According to him, $965 million was spent on importation of wheat by Nigeria in 2016, while importation of rice and sugar gulped $397 million and $100.2 million respectively. He queried Nigerias decision to spend $655 million on fish importation despite the countrys marine resources, rivers, lakes, and creeks in Nigeria. Nigeria is tragically living on borrowed time, a typical case of robbing Peter to pay.

Finance minister unfolded the Medium Term Expenditure Framework, MTEF, for 2020-2022; a Prudential requirement of the fiscal Responsibility Act, which is essentially a three year rolling plan from 2020 -2022. The indications are that the country is in deep fiscal crisis and government is virtually broke, and Nigerians are to expect harder times ahead.

First the budget size of N9.78 trillion for 2020 represents a reduction of N360 billion from the 2019 budget of N10.06. Also the critical index or bench mark of oil price was reduced to $55 per from the $60 for 2019. This sounds realistic as non OPEC members are expected to pump extra 2 million bpd next year into the market ensuring that oil price may not rise above the present $60 ceiling.

Capital vote has also been reduced from N3.18 trillion in 2019 to N2.06 trillion, a shortfall of N1.3 trillion. A major challenge since this government has been the failure to seriously fund the capital vote as most of it had always been through borrowing which often never crystallized.

However, the real concern for most people is the allocation of N2.45 trillion for debt service for 2020, which raises a dilemma confronting the country whether to continue to borrow and how to service existing debt which is expected to consume 68 percent of annual revenue in debt service next year to avoid default and further complications with the debt management.

To address these issues government decided to call in the budget support fund of N614 billion given to the state governments during President Buharis first term, which deductions will begin in September against the protestations of the governors who wanted reconciliation before deductions. Also government has approved an increase in Value Added Tax, VAT, from the current 5 percent to 7.2 percent although there is no implementation date yet.

Also the FIRS had blocked the accounts of 40000 alleged tax evaders from whom 19 percent has paid the sum of N98 billion in the last few months, raising hope that full compliance can easily raise close to a trillion naira extra for the government.

But experts frowned at this step insisting that government is taking the easy way out as it would have been better and more effective and sustainable for government to widen the VAT and tax net rather than increasing the burden on current payers, because it does make any effort to include those who are not presently paying. Again given the poor state of the economy, increasing the VAT is going to increase the cost production and make local products less competitive.

Mr. Kennedy Iwundu, a chartered accountant and president of Tax Practitioners of Nigeria, Abuja branch, believes  that government cut is cutting its nose to spite its face.


“VAT increase will increase liquidity in the system with consequent effect on inflation, which is going to compound the job of the CBN; and higher inflation will worsen poverty level and erode present purchasing power; it is called cost inflation because producers who are paying the VAT would pass it on to the consumers through pricing. It does not make economic logic to raise tax in a depressed economy.”

Dr. Bonifce Chizea, CEO BIC Consultancy Ltd, said, it is a no win situation for the country.

“With the cut in the budget and especially the capital vote, we should not expect poverty reduction next year; the challenge we must confront is to strive for private sector-led economy because as it is government has proved abjectly incapable of managing the economy. Just 10 years ago Nigeria was debt free; today we have doubled what we owed then. And with falling revenue, it will get increasingly more difficult to repay.”

Ordinarily, given the size of the GDP, $82 billion debt is still acceptable; but as the minister admitted, the revenue crisis is even worse than the debt itself because it is the revenue that is used to pay the debt.

Eze Onyepkere, Lead Director, Open Society and Social Justice centre said the country is in “fiscal crisis like one digging in a hole; what is expected in a situation like this is certain innovative ideas and not treading the well beaten path. The FIRS was expected to raise N7 trillion in 2018 but only managed N3. 8 trillion; so where is all the money being declared by the agency? Something is not right.

“There should a convergence between fiscal, monetary and industrial policies to produce the right mix of outcomes. As it is today, there is no direction and we are getting deeper into trouble. For instance, why do we still have fuel subsidy when the economy is choking from low revenue? Why is government pouring money into social intervention when it cannot fund capital project which is a more sustainable way to improve the economy? It doesnt make sense!

“There is also need for more consultations with the public to access possible options on the way forward.”

Senator Shehu Sani said that Nigeria must avoid falling into another pit especially from China, by taking another loan; China is offering Nigeria another $5 billion loan. Already Nigerias debt to China is about $27 billion.

The 2019 budget was in jeopardy like the past ones before its birth as a result of funding challenges with the capital expenditure. This government has attempted to fund capital projects from borrowing which has left a mixed bag of outcomes: rising rate of debt service and poor implementation of budget. Desperate for result, it is turning to assets auction in the 2019 budget.
While government has been borrowing to fund capital projects, the government has been meeting its recurrent expenditure promptly even the unsustainable social welfare programmes such as the school feeding, N5000 cash payment to the poor, and the N10000 Trader money etc, which consumed over N400 billion in 2018. Not surprising, the recurrent expenditure component of the budget has been on a steady rise climaxing at 74 percent in the 2018 budget.

Sale of assets to fund budget is simply an act of desperation rather than a clear well thought out policy option to improve the economy. This government has never mention privatization as part of its policy agenda and its sudden embrace is somewhat an after-thought, indeed it is not really privatization as the assets are being acquired by other government agencies such as the Central Bank of Nigeria taking over Mint and NNPC Ajaokuta Steel Company.

Huge cost of servicing new loans amid poor revenue informed the Federal Governments decision to dispose of 10 state-owned assets to select investors and the public between now and year end, in order to fund the 2018 fiscal plan.

In the sale of the some ailing key national assets, (Nicon Insurance Limited and Skyway Aviation Handling Co), the government is expected to earn the sum of $797m, that is, N289b. A Director at the Bureau of Public Enterprises (BPE), Joe Anichebe, who revealed governments plan to sell the outfits, informed that the privatisation agency had pledged to raise N306b to help finance the planned spending.

Under the plan, nearly N2trillion is to be raised from borrowings from both the domestic and international markets to fund infrastructure captured in the spending plan for the year.

For Chief Emma Nwosu, former MD, ACB, the states no longer have much option.

“The federal government itself is heading towards another debt trap. A DMO report fortnight ago showed that within three months – between December 31, 2018 and March 31, 2019 – the country borrowed N560bn. And within four years, the country’s debt total – state and federal – has gone from about $11trillion to $25trillion. This, according DMO comprise N17trillion for domestic debt and N7.8trilllion for external.”

“The issue of debt over-hang and debt crisis is not just a sub-national, it’s a national crisis,” said Dr Vincent Nwani, economic consultant.  “Over the last four years, Nigeria has doubled its debt from N11.8trillion to about N25trillion. This is a very big challenge.”


The authorities argue, however, that the debt stock is still low relative to GDP. In a presentation to investors in Washington recently, former Minister of Finance, Zainab Ahmed, noted that Nigerias debt, while it had risen in recent years, was still equal to just 19 per cent of gross domestic product in 2018, which is well below the average for emerging markets of just under 50 per cent of GDP.

However, analysts say the argument is deceptive because the revenue to GDP ratio is extremely low. Indeed, IMF data showed that Nigerias general government revenues were equal to just 5.7 per cent of GDP last year, far below the average of 22 per cent of GDP for the other 44 sub-Saharan countries for which the IMF collects data.

Nwani noted that the sad part is not the borrowing, but what the borrowed money is spent on. He regretted that there hasn’t been a corresponding relationship between borrowing and infrastructure development.

“It doesn’t correspond and that’s another worry. It is not really bad for government to borrow, but when government borrows, it is important to use the funds to finance projects that will benefit future generations who will pay back the loan,” he said.

“Unfortunately we borrow to pay medical expenses and pay salaries. That’s the sad thing. We are not borrowing to invest, we are borrowing to consume and we don’t even consume them well. Most still go back to where we borrowed them from.”

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