President Muhammadu Buhari


The ballooning debt profile of Nigeria without a robust repayment plan has continued to be a big source of worry to economic stakeholders, raising doubts about the federal government’s ability to achieve the target economic recovery.

There are fears that with the way Nigeria’s debt servicing is eating deep into the nation’s dwindling revenue, unless very drastic policy steps are taken, the struggling economy may soon find itself in a state of disrepair.

Recent data show that the federal government spent a sum of N1.02 trillion on domestic and foreign debt service in the first quarter of 2021, representing a 35.7 per cent year-on-year increase compared to N753.7 billion spent in the corresponding period of 2020.

A cursory look at the data released by the Debt Management Office (DMO) reveals that N612.71 billion was spent on domestic debt service, while N410.1 billion was expended on servicing of external debt.

It would be recalled that Nigeria’s total debt portfolio rose to N33.1 trillion as of March 2021 from N32.9 trillion recorded as of the end of 2020, representing an increase of 0.58 per cent. The debt expense for the period already represents 30.7 per cent of the total N3.32 trillion budgeted for debt service for the entire year.

This implies that every Nigerian currently owes about N157,906 in terms of debt per capita as with the country’s total public debt at N33.1 trillion. Debt per capita is calculated as the total public debt of a country divided by the country’s population and Nigeria’s population is estimated to be 209 million, according to the World Poverty Clock.

Nigeria’s dwindling revenue is still a major factor militating against the expected development of the economy. The situation has continually led the federal government to borrow to fund its fiscal budget. Nigeria spent the equivalent of 83 per cent of its revenue in 2020.

The total revenue earned by the government during the year stood at N3.93 trillion, while the amount spent on debt service stood at N3.26 trillion.

In the same vein, Nigeria also recorded a 99 per cent debt service to revenue ratio in the first quarter of 2020, having recorded retained revenue of N950.56 billion and incurred a sum of N943.12 billion in debt service.

However, the government projects a debt service ratio of 46.9 per cent for 2021, with its revenue projected to stand at N6.6 trillion, depending on the crude oil benchmark of $40 per barrel.

According to the 2021 budget, N7.99 trillion was projected as the amount available for the year, indicating a budget deficit of N5.6 trillion, which is expected to be funded by borrowing.

The Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, explained that the deficit will be financed by borrowings from domestic and foreign sources.

The minister, who revealed that Nigeria’s public debt would hit N38tn by December 2021, also stated that N205.15 billion will come from privatisation proceeds.

Since the inception of the Buhari Administration in May 2015, Nigeria’s debt stock has risen astronomically with the government insisting that it has no options but to borrow if it would meet the growing demands of governance.

In 2015, Nigeria had a total foreign debt stock of $7.02 billion compared to the present staggering $33 billion.

Way to go.

Reacting to the situation, an economist, Mr. Tope Fasua, advised the federal government to improve on the budgeting system to check deficit financing and make the annual budgets more impactful.

Fasua cautioned that though borrowing had become imperative due to prevailing circumstances, especially with the advent of COVID-19, such borrowings should be judiciously utilised to improve infrastructure that can grow the economy.

“Unfortunately, we have found ourselves in a difficult scenario due to the COVID-19 pandemic and fall in crude oil prices and we just have to go borrowing like most other countries in the world.

“Government should ensure that our borrowings are effectively utilised for optimum economic impact,’’ he said.

Laoye Jaiyeola, Chief Executive Officer of the Nigeria Economic Summit Group (NESG), said that, though Nigeria’s debt to GDP ratio could be considered low, the revenue that went into debt servicing was still on the high side.

Mr. Jaiyeola opined that expending 25 per cent to 30 per cent of national revenue on debt servicing, as presently done by the Nigerian government, was not sustainable.

He urged the federal government to adopt tough but necessary policy choices in order to improve on its revenue and reduce its dependence on foreign and local loans to fund budget deficit.

“We should all be worried about the rising debt profile of the country.

“Some people say that the debt to GDP ratio is still low. It could be low, but servicing debt is still a challenge,” he said.

He suggested a drastic cut in running cost of governance, reduction in recurrent expenditure, as well as removal of subsidies in electricity and petroleum products, as a way of reducing the debt burden.

On his part, an economic analyst, Yemi Adebowale, regretted that the federal government is obviously unperturbed by Nigeria’s rising debt profile and the adverse effect of excessive borrowing.

“Nigeria’s debt servicing is already a problem, eating deep into dwindling revenue. That was why the federal government spent a scandalous N1.57 trillion on debt servicing in the first six months of 2020, he said.

“As more debts mature for payments, the pressure on revenue rises. For me, the way forward is to cut off unnecessary loans. Why take loans for railway, power and airport projects?

“The standard in sound countries is for government to create an enabling environment for the private sector to play leading roles in developments of areas like railway.

“Rational governments work to free resources for health, education and other welfare sectors. In Nigeria, we are busy diverting our limited resources to areas better handled by the private sector.”

Escaping debt stress.

During the recently concluded African Development Bank Group’s 2021 Annual Meetings, regional economic stakeholders expressed concern about rising national debts, warning that majority of countries in the continent stand a high risk of falling into a debt trap.

They experts, who warned African political leaders to explore other funding options and scale up debt management transparency, observed that majority of the countries are grappling with sustainability just as debt servicing has become a major burden on the regional economy.

Citing continent-wide research, president of the bank, Dr. Akinwunmi Adesina, pointed out that only one out of 38 African countries with sustainability reports was free from sustainability challenges. The rest, he said, had challenges ranging from moderate to high risks.

According to him, to increase sustainability, African countries would need to agree on the convergence of macroeconomic reforms, increase the fight against corruption and deepen domestic resource mobilisation to reduce the risk of a debt crisis.

“There should be full transparency on debt, especially those owed by state enterprises,” he stated, adding that debt relief might not lead to economic growth. He stressed that financial stability was also key to averting the looming debt crisis.

The Director-General of the World Trade Organisation (WTO) and ex-Minister of Finance, Dr. NgoziOkonjo-Iweala, observed that higher debt carriage capacity meant a higher risk of distress, stating that most African governments considered it convenient to ignore the debt sustainability threshold when “things are good” only to expose themselves to systemic risks when the economy is on a downtrend.

The ex-Finance Minister called for the adoption of innovation in public finance and debt management, adding that increasing demand for bonds and enforcing open border initiatives as represented by the African Continental Free Trade Agreement (AfCFTA) could help to unlock economic potential and increase debt sustainability.

“Innovation in debt financing is key,” she said, while noting that rising debt to revenue translated to fewer resources for the much-needed developmental projects across the continent.