On April 4, the Director-General of the Debt Management Office (DMO), Patience Oniha, dropped a bombshell that Nigeria’s bloating debt portfolio has hit N24.39 trillion as at December 31, 2018. The debt rose by N2.66 trillion in one year as the 2017 figure was N21.72 trillion.
According to her, the new debt stock represents a year-on-year growth rate of about 12.25 per cent.
But to economy watchers, the revelation was not totally a surprise because the Central Bank of Nigeria’s Monetary Policy Committee (CBN/MPC) rose from its first 2019 meeting in January with a red flag over government’s insatiable appetite for external borrowing.
The committee then warned that Nigeria’s debt level could fast be approaching the pre-2005 Paris Club exit level of $30 billion; before a two-time Finance Minister, Dr Ngozi Okonjo-Iweala, brokered a deal with the Paris Club, an informal group of creditor nations and brought the country a whopping $18 billion reduction.
Experts insist that the growing debt remains a product of poor financial decision-making/fiscal management on the part of government as many Nigerians are yet to feel the impact of what the borrowed money has been ploughed into since poverty still stares the citizens in the face.
While the Federal Government boasts of a robust debt sustainability programme and the country’s capacity to pay back, finance experts and the international community are rather uncomfortable with the figures that grew from N21.12 trillion in 2015 to N24.39 trillion last year.
Their fears spring from a plethora of challenges ranging from heavy reliance on dwindling crude oil sales and a slow economic diversification pace to revenue leakages and systemic corruption in form of inflated petrol subsidy payouts and others.
There is palpable fear that the country might be boxed into a debt trap considering that 70 per cent of her income will be channeled into debt servicing.
Consequently, Christine Lagarde, the Managing Director of the International Monetary Fund (IMF), has called for the total dismantling of all forms of subsidies, saying it was the only option left for Nigeria to raise more money to fund its dilapidated infrastructure and improve the living standards of the people, given its poor tax to GDP status compared to other countries in its income bracket.
She lamented that $5.2trillion has so far been spent by oil producing nations across the world on fuel subsidy in the last four years.
More so, the IMF’s Financial Counsellor and Director, Monetary and Capital Markets Department, Tobias Adrian, while presenting the Global Financial Stability Report at the just-concluded joint annual spring meetings with the World Bank in Washington DC, said, “Nigeria has been borrowing in international markets but we worry. So, on the one hand, that is very good because it allows Nigeria to invest more; but on the other hand, we do worry about rollover risks going forward.
“At the moment, funding conditions in economies such as Nigeria and other sub-Saharan African countries are very favourable but that might change at some point. And there is a risk of rollovers and there is the risk of whether these needs for refinancing can be met in the future”, he said.
Incidentally, the anxiety over the country’s swelling external borrowing is not felt only in the aforementioned quarters.
In September 2018, former Minister of Environment and Deputy Secretary General of the United Nations (UN), Amina Mohammed, warned about the Buhari administration’s addiction to borrowing, stating at a public event that: “As I was coming up from New York, some of the concerns that came up from the meeting we had in China just recently and reports that we have, the debt issues are really big. I mean, having experienced what it was for Ngozi Okonjo-Iweala to get debt relief—it took her a few years to convince people, and we are now back again in the country, with a level of debt that is worrying.”
But the Minister of Budget and National Planning, Udoma Udo Udoma, and his Finance counterpart, Mrs Zainab Ahmed, insist that the debts are sustainable, though they also concede that the country has a huge revenue challenge.
Udoma said: “With regards to our debts, our debts are sustainable. We do have a revenue challenge and we are focusing on that. Every nation borrows. Once the revenues come up, it will be obvious that we don’t have a debt problem at all.
“We are working on a number of initiatives to increase our revenues. We are looking at initiatives to widening the tax payers base. We are looking at initiatives to increase efficiency in collections.
“We are looking at a single window, which will help to increase efficiency, Customs collections. We are looking at many different ways to improve revenues.
While the government maintains it is borrowing to finance infrastructure, there are also concerns over the capability of the government-owned and operated infrastructure to liquidate the loan used in building it on schedule.
For instance, the $1.46 billion
Abuja-Kaduna rail service that was inaugurated by President Muhammadu Buhari on July 26, 2016 is yet to break even, let alone making profit.
The Managing Director of the Nigerian Railway Corporation (NRC), Fidel Okhiria, said earlier in the year that the train service generated over N80million monthly in 2018.
He said the figure was higher than the N16 million generated monthly in 2017, but noted that in spite of the increase in revenue, the corporation had yet to break even as it still spent over N100million monthly as running cost mainly due to poor public power supply.
So, analysts are wondering how soon that service will break even, make profit, repay its loan and sustain a safe and efficient operations using locomotives.
There are already complaints of frequent blackout in some of the coaches, ticket racketeering, poor air-conditioning system onboard and other blights synonymous with government enterprises.
It is believed that these issues, if not hurriedly and sufficiently tackled, may eventually shrink patronage as government is yet to engage the private sector in operating the service to allow it bring in the needed expertise to offer higher service than the current in-house effort.
There is also a stumbling block on the path to diversifying the economy via agriculture in the form of the persistent farmers/herders clashes that have reduced food production volumes in no small measure.
Hence, the Central Bank of Nigeria has repeatedly called for solutions to the menace to enable agriculture take its rightful place in the economy.
Tongues are also wagging over the Federal Government’s fixation on crude oil when virtually all the states in the north have vital natural resources like gold, zinc, uranium and others in commercial quantities.
According to a report by the Nigerian Extractive Industries Transparency Initiative (NEITI), Nigeria lost a whopping $9 billion in 2014 and 2015 to illegal mining.
Unfortunately the activities of illegal miners have not been addressed till date. Lately, it snowballed into turf wars in Zamfara State where over 3,000 people have been killed as many interest groups battle to control lucrative gold mining sites.
Rather than go cap in hand securing offshore loans, many have urged the government to develop the lucrative mining sector, rather allow illegal miners snatch the sector from the government and rob it of all accruable revenue therein.
More so, studies by the IMF and World Bank reveal that Nigeria could even better with these solid minerals than crude oil if well harnessed.
A professor of Capital Market and Head of Department, Banking and Finance at Nasarawa State University, Keffi, Uche Uwaleke, described the growing debts as a huge challenge.
He, however, said borrowing to diversify the economy and expand the export base was not a challenge as long as the projects the loans are channeled into are self-liquidating.
“Borrowing for capital projects is not an issue but the project should liquidate the loan and still offer the services it was meant to provide.
“We should not use taxpayers money to subsidise such projects for which the loans were secured. We should hand over such projects to the private sector to run it strictly as a business concern.
“The real issue here is not the debt figure but the cost of servicing it at 70 per cent. That’s very high and that’s why we must urgently expand our revenue base. Our debt to GDP is lower than South Korea that is 38 per cent.
“The issue with Nigeria is really debt service to revenue ratio. We must cut down waste drastically and identify those self-liquidating projects and get concessionary loans for them. Loans with long gestation period and low interest rate.
“South Korea offers Official Development Assistance (ODA) to some African nations but Nigeria is not on the list. When I asked, they said we did not approach them for it.
“ODA flows are defined as those flows to countries and territories and to multilateral development institutions which are provided by official agencies, including state and local governments, or by their executive agencies; and it is administered with the promotion of the economic development and welfare of developing countries as its main objective. It is also concessional in character. Such a facility will help us a great deal”, he said.
Also commenting on the development, the Centre for Social Justice in its report on the review of the 2019 appropriation document, urged the government to hurriedly create new sources of revenue.
The National Coordinator of the group and seasoned economic analyst, Eze Onyekpere, urged the President and National Assembly to consider the reduction of domestic and foreign borrowing and instead focus on increasing Public Private Partnerships (PPPs) through well prepared projects involving the Ministries Departments and Agencies (MDAs), the Infrastructure Concession Regulatory Commission (ICRC) and the private sector.
“The President and National Assembly should set the Consolidated Debt Limits of the three tiers of government in accordance with section 42 of the FRA mandating these limits”, he added.
He also called for special purpose vehicles that garner and aggregate resources from a plethora of sources including institutional and retail investors to fund priority capital projects.
“The government should consider increasing Value Added Tax (VAT) from 5 per cent to 7.5 per cent and also initiate measures to increase collection efficiency.
“FGN should account for and utilise stamp duties which has accrued trillions of naira at the CBN. There is need for the review of Petroleum Production Sharing Contracts as recommended in various Nigerian Extractive Industries Transparency Initiative studies (NEITI).