Embattled: Kemi Adeosun – Nigeria’s unsung Amazon

EMEKA EJERE|

An economy that deploys about 66 percent of its revenue to debt servicing is certainly in crisis and the managers of such economy are not to be envied. This is more so with a 2017 budget of 70 percent recurrent and 30 percent capital expenditures intended to be financed majorly through borrowing.

At the peak of the nation’s debt overhang in the early 2000 the country was spending about 40 percent of its revenue on debt serving which prompted negotiations for debt relief in 2005.

In the Nigeria-Paris Club agreement the club wrote off 60% of the debt that Nigeria owed members. Nigeria, on its part, paid back the remaining 40% in two phases. As a news report puts it, “in real terms, the Paris Club will cancel $18 billion of Nigeria’s debt, or about 60% per cent of the about $30 billion owed to the Club. But the Club will be paid `an amount of $12.4 billion.’”

There is, perhaps, no better way to paint the picture of the deplorable condition of the Nigerian economy and the resultant headache of the Minister of Finance, Mrs. Kemi Adeosun and her economic management team in the face of the nation’s frightening debt profile.

The helpless minister’s frustration became even more apparent penultimate week when she unwillingly called integrity to question by reversing, within 24 hours, her position on whether or not the country should borrow further.

Mrs. Adeosun was quoted to have stated at a business forum in Abuja: ‘‘We cannot borrow anymore.  We just have to generate funds domestically enough to fund our budget; mobilize revenue to fund the necessary budget increase.”

But barely 24 hours later, she recanted on the strategic direction to the chagrin of most Nigerians. Speaking through the Director of Information, Federal Ministry of Finance, Mr. Salisu Na’Inna Dambatta, Adeosun said Nigeria would continue to borrow (both domestic and foreign), adding that nothing had changed to dictate otherwise.

Nearly two years after he assumed office, President Muhammadu Buhari launched what his administration has tagged the Nigeria Economic Recovery and Growth Plan (NERGP2017-2020).

While most analysts welcomed the plan’s three cardinal objectives of restoring growth, improving Nigeria’s economic competitiveness and increasing social inclusion, there were those who argued that it could worsen the country’s already high debt service ratio.

They cited the fact that the Minister of Budget and National Planning, Mr. Udoma Udo Udoma, had maintained on several occasions that the NERGP was already being implemented as part of the 2017 budget, which government had said would be significantly funded by borrowings from domestic and external sources.

Specifically, in order to revive growth after the economic contraction of 2016, President Buhari proposed a record N7.3 trillion budget for 2017 (a figure the National Assembly later reviewed upwardly to N7.441 trillion), resulting in a deficit of N2.36 trillion. He stated that the deficit would be financed mainly by projected borrowing of about N2.32 trillion.

He had explained while presenting the 2017 budget proposals to the National Assembly that government’s intention was to source N1.067 trillion or about 46 per cent of the borrowing from external sources while N1.254 trillion would be borrowed from the domestic market.

High debt servicing

However, before the NERGP was released, figures published by the Debt Management Office (DMO) show that Nigeria spent $1.974 billion dollars to service its external debt and another N4.855 trillion to service its domestic obligations in the last six and a half years.

The then DMO Director-General, Dr. Abraham Nwankwo, had, revealed last February that the nation’s total debt profile as at December 31, 2016, was N17.36 trillion up from N16.29 trillion in June 2016.

Further analysis of figures obtained from the agency indicates that the country spent $166.02 million to service its external debts in the first half of 2016 while N616.68 billion was spent on servicing local debts during the same period. This figure is expected to rise this year and throughout the three year period that the plan covers.

The reason is that apart from the fact that government recently issued a $500 million Eurobond as part of the 2016 budget – after raising $1 billion in February – it is also seeking to get loans (at least $1 billion) from the World Bank in addition to the $600 million it had taken last year out of a $1.6 billion African Development Bank (AfDB) loan.

Financial experts point out that while Nigeria’s debt to Gross Domestic Product (GDP) remains low at around 16 per cent, the country should be worried about the percentage of its revenue that goes into servicing of debts.

Growing concerns

Former Managing Director of Diamond Bank, Dr Alex Otti, cautioned managers of the economy to be wary of the nation’s growing appetite for debt in the 2017 budget.

Otti in an exclusive interview with BusinessHallmark expressed discomfort with the nation’s ability to service huge debt obligations on a long-term basis, fearing that Nigeria may find it difficult to manage the debt pull should it continue along this dangerous path.

“I am not against borrowing. But I want to know what you are borrowing for. I am worried because I understand at the moment that we spend about 35 percent of our revenue in servicing debts. That is a huge number.

“I think it’s time the government thinks of investment rather than borrowing. What can we do to encourage investment, both foreign and local?  Somebody argued that we still have room to borrow, but you need to look beyond your borrowing and focus on your ability to pay back,” he said.

BusinessHallmark’s investigations reveal that government revenues in Nigeria decreased to N805.05 billion in the fourth quarter of 2016 from N938.71billion in the third quarter of 2016. It further reveals that government revenues in Nigeria averaged N803.03 billion from 2010 until 2016, reaching an all time high of N1091.75 billion in the third quarter of 2011 and a record low of N498.54 billion in the second quarter of 2015.

World Bank, IMF caution

In April this year, the World Bank cautioned Nigeria and other African nations against excessive debts, urging a balance between massive spending for development on the one hand and moderation in borrowing on the other.

Chief Economist for African Region, Albert Zeufack, who spoke on the latest update on the continent’s economy, Africa’s Pulse, via webcast from the bank’s headquarters in Washington DC, USA, said:

“What is good for Nigeria is that debt to the GDP ratio is still low but the debt to revenue ratio is already high. The environment of weak economic growth comes at a time when the continent is in dire need of necessary reforms to boost investment and tackle poverty. Countries also have to undertake much-needed development spending while avoiding increasing debt to unsustainable levels.

“Fiscal restructuring is going to be challenging and the government has to be careful in order to balance efforts to develop the country with a moderation in borrowing.”

The International Monetary Fund (IMF) had, in 2015, raised concerns over Nigeria’s rising debt portfolio, warning at the time that the cost of servicing the country’s debt could rise to 35 per cent of revenues in the next four years.

In its staff report on Nigeria issued that year, the IMF stated:

“While the overall debt burden would remain contained under stress, the interest burden would increase further by an additional four per cent of revenues, bringing the total burden to around 40 per cent of revenues.

“Consequently, to ensure sufficient space to finance desired investment, the authorities should continue to follow a prudent approach to borrowing, remain vigilant to the trade-offs between cost and risk, and ensure the proceeds from borrowing is managed to secure the maximum return on investment.”

More recently, in the report on its Article IV Consultation with Nigeria issued a few weeks ago, the IMF advised Nigeria to remove currency-trading restrictions and reduce its budget deficit and debt-service costs to “sustainable” levels, pointing out that Nigeria’s debt-service costs doubled last year to 66 per cent of revenue.

The Fund stated: “Stronger macroeconomic policies are urgently needed to rebuild confidence and foster an economic recovery,” adding that there’s a “need for a front-loaded, revenue- based fiscal consolidation starting in 2017, to reduce the Federal Government interest payments-to-revenue ratio to sustainable levels.”

Immediate past Governor of the Central Bank of Nigeria (CBN) and Emir of Kano, Muhammadu Sanusi II, also commented on the government’s economic model, saying it would not work.

Contending that the Federal Government was borrowing unsustainably, he corroborated the IMF’s view that Nigeria was spending 66 per cent of its revenues to pay interests on debts, stressing that such a model was unsustainable.

Sanusi said, “The Federal Government of Nigeria is spending 66 per cent of its revenues on interests on debts, which means only 34 per cent of revenues is available for capital and recurrent expenditures.

“That model cannot work. If you look at the 2017 budget of the Federal Government, I sometimes wonder what Nigerian economists are doing?

“In the 2017 budget presented by the Federal Government, the amount earmarked for debt servicing is in excess of the entire non-oil revenue of the Federal Government, but that is not the problem. The problem is that it is a budget that is even going for more debts.”