Business & Economy

Anxiety over Nigeria’s rising public debts

With Nigeria’s total public debt projected to hit N38.68 trillion by December 2021, there are worries that the rising debt stock will not bode well for an economy already in dire straits

Can anybody, not to talk of a country been able to survive or live on debts? That shockingly is the case with Nigeria. Naturally, those who should know say this is a serious cause for concern.

At issue is that the country has become enmeshed in debts, which has continued to grow in rather exponential proportions.

Crux of the matter

From available information, Nigeria’s debt stock has risen by over 158 per cent in the last five years. One what better illustrates the debt crisis is the projection made by the Minister of Finance, Budget and National Planning, Zainab Ahmed that based on existing approvals the country’s total public debt may hit N38.68 trillion by December 2021.

The minister spoke recently when she appeared before the Senate Committee on Local and Foreign Debts.

Her comments come amidst growing concerns over Nigeria’s debt stock. This is even as the nation plans to fund the 2021 budget deficit with N4.28 trillion new borrowings which represents about one-third of the proposed budget.

In the 2021 budget presented to the National Assembly in October, President Muhammadu Buhari proposed N13.08 trillion expenditure for the next fiscal year. He also announced that total federally distributable revenue is estimated at N8.433 trillion in 2021 while the total revenue available to fund the 2021 Federal Budget is estimated at N7.886 trillion.

In her presentation, Ms Ahmed said the total public debt stock comprising the external and home debts of the federal and state governments and the Federal Capital Territory stood at N31.01 trillion ($85.90 billion) as of June 30.

“It is projected, based on existing approval, to rise to N32.51tn by December 31, 2020 and N38.68tn by December 31, 2021.”

She further explained that the proposed N4,28 billion borrowing, was broken down equally between Domestic Borrowing of N2.14 billion and External Borrowing of N2.14 billion.

While she blamed abandoned road projects across the country on poor fund releases, she explained that the current SUKUK fund of N162 billion is for 45 roads cutting across the six geopolitical zones.

“I am one person that feels that we should just take one major road in one geopolitical zone and finish it. We were not able to do that because of the processes in which appropriation is made both at the executive as well as the legislative arms of government.

“But truly, if we are able to just take one or two projects at a time and complete it before going to the next one, it will be better. What the contractor does is the bit that has been cut out for him to do in that particular area.

“Once the fund is released and it is finished, we stop again. That’s the consequence of these numerous projects that we put in the budget. It is not related to Sukuk-funded projects alone; it cuts across all the projects,” she complained.

Catalogue of debts

In 2019 Nigeria public debt was 116,641 million euros130,579 million dollars, has increased 20,506 million since 2018. This amount means that the debt in 2019 reached 29.14% of Nigeria GDP, a 1.48 percentage point rise from 2018, when it was 27.66% of GDP.

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Causes of public debt

The major factors include the rapid growth of public expenditure, particularly that on capital projects, borrowing from the international community at non-concessional interest rates, decline in oil earnings from the late 1970s and the dependence on imports, which contributed to the emergence of trade arrears.

The Nigerian economy is dominated by crude oil, which accounts for about 10% of the country’s GDP, 70% of government revenue and more than 83% of the country’s total export earnings, according to OPEC. Nigeria is the world’s 8th oil exporter, and its oil reserves are estimated at about 35 billion barrels.

Debt projection by DMO

The cap for public debt has been raised to 40 per cent of Gross Domestic Product (GDP).It was increased from 25 per cent “in order to accommodate new borrowings to fund budget deficits and other obligations of the government,” according to the pat Oniha-led Debt Management Office (DMO).

The DMO said the ratio “is still well below the World Bank/ International Monetary Fund (WB/IMF’s) recommended threshold of 55 per cent for countries in Nigeria’s peer group”.

The DMO added that from 2020 to 2023 when this new borrowing strategy will last, “borrowing will be from domestic and external sources but a larger proportion of new borrowing will be from domestic sources using long-term instruments while External Borrowing will be prioritised concessional funding from multilateral and bilateral sources.”

Portfolio Composition from 2020 to 2023 will be in the mix or ratio of, Domestic 70 per cent: External 30 per cent. This, the DMO said is “to further strengthen the domestic debt market and optimise access to both Concessional and Commercial sources of funding.”

With regards to refinancing new debts, the DMO said the government will be doing an average Tenor of Debt Portfolio of 10 years minimum while long-Term to Short-Term Domestic Debt Mix will be in the ratio of 75%:25%. This, the DMO said “is to sustain the issuance of longer-tenored instruments with tenors of 10 years and above, in order to effectively manage refinancing risks.”

The implementation of the Medium-Term Debt Management Strategies over the years, “has helped in managing the structure of the growing public debt, and ensured debt sustainability, as well as effectiveness in public debt management”.

The DMO assured that the Strategy will be implemented to support economic development while ensuring that the Public Debt is sustainable.”

The Medium-Term Debt Management Strategy (MTDS) is a policy document that provides a guide to the borrowing activities of the government in the medium-term, usually four years.

It is recognised as one of the best practices in public debt management and is recommended by the World Bank (WB) and International Monetary Fund (IMF) to ensure that public debt management is driven by a well-articulated Strategy that is structured to meet a country’s broader macroeconomic and public debt management objectives.

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The MTDS, 2020-2023 was prepared by the Debt Management Office (DMO), in collaboration with the Federal Ministry of Finance, Budget and National Planning; Central Bank of Nigeria; Budget Office of the Federation; National Bureau of Statistics and the Office of the Accountant-General of the Federation.

According to the DMO, “Nigeria has had two (2) Medium Term Debt Management Strategies (2012-2015 and 2016-2019), prior to the current Strategy.”

Comparative analysis of Nigeria’s debts and other African countries

According to Paul Alaje, an financial pundit, “An average statistics of 2012-19, among some selected high-debt African countries which include Angola, Cameroon, Ghana, South Africa, Cote d’Iviore and Rwanda showed that Nigeria accounted for 43 per cent of the total government debt owed by these countries, followed by Angola with 22 per cent.”

Going down memory lane, Alaje, who is a fellow of International Management Consultants Board (FIMCB), USA, recalled that “Between 2010 and 2018, Nigeria’s external debt was more than ¦ 16.7 trillion which is a 128 per cent increase from the previous balance and when compared to the previous debt stock before 2010, it is more. This means Nigeria has been borrowing more in recent years than in the previous. As at the end of January 2019, the Central Bank of Nigeria warned the country of the risk of going back to pre-2005 Paris Club level if the borrowing behaviour continues. Debt Management Office of the federation reported Nigeria’s debt stock to be ¦ 26.2 trillion as at September 2019, with external debt taking 31.55 per cent of the total debt while the domestic debt takes 68.45 per cent.”

Anyway out of borrowing mess?

Speaking on the nation’s debt debacle, Victor Ndukauba, Deputy Managing Director at Afrinvest West Africa, a leading independent investment banking firm with a focus on West Africa, said it calls for concern.

According to him, “When we look at where we are coming from, you shudder to believe that we have turned full cycle in a matter of years. In 2015, the total debt stock stood at around N13trillion. But unfortunately, they added over N24 trillion within the last five years. But all you hear is that we have done this, we have done that. But at the risk of sounding too negative, if you think as a true Nigerian, you want to ask yourself what is the rationale behind raising debts not proportional to the revenue we are earning. That is simply recipe for disaster, which is already playing out in form of insecurity across the country because there are no jobs. All I can say is that it doesn’t make any economic sense to borrow N100m and pay back as much as N88 in return. That is the situation in Nigeria.”


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