Nigeria’s debt sustainability question: Addressing systemic leakages against sliding into trap zone 

That Nigeria may be running into debt trap has been one concern which has continued to attract outcries. Although, the government has maintained Nigeria’s borrowings is within the limit of Debt-to-GDP (Gross Domestic Product) ratio, it is apparent that there are justifiable grounds which antagonists of the addictive borrowing disposition of the present government have put forth to substantiate their arguments are not outrightly false. The facts themselves have their firm reflections.

Such issues as the cost of  borrowings with high interest rate of loans; unsustainable revenue-to-debt servicing ratio; misapplication of loans; borrowing for recurrents; among others; have their grips of justification on the sustainability question of Nigeria’s debt, which is feared to be headed for a trap. The International Monetary Fund (IMF) in its April 2022, Fiscal Monitor, had projected that Nigeria’s total public debt will rise steadily to 44.2 per cent GDP, by 2027, adding that the total fiscal spending of the General Government (Federal and State governments) will widen to 6.4 per cent of GDP this year, 2022, from 6.0 per cent at the end of 2021.

The IMF had disagreed with the Debt Management Office’s (DMO) position that “with the Total Public Debt Stock to Gross Domestic Product (GDP) as at December 31, 2021, of 22.47 per cent, the Debt-to-GDP ratio still remains within Nigeria’s self-imposed limit of 40 per cent.” On IMF’s part, Nigeria’s Debt-to-GDP ratio stood at 37.0 per cent at the end of 2021, and will rise to 37.4 per cent in 2022, 38.8 per cent in 2023, 40.2 per cent in 2024, 41.6 per cent in 2025, 42.9 per cent in 2026 and to 44.2 per cent in 2027. The IMF had also projected that the general government fiscal deficit would slightly improve from 6.4 per cent to 5.9 in 2023 and 2024, before deteriorating, once again, to 6.1 in 2025, 6.3 per cent in 2026 and 6.4 per cent in 2027.

The outcries and warnings, nonetheless, have not constrained the government to adjust its borrowing disposition with caution. Recent documents have shown the country’s debt stock have risen by about N4 trillion in the past five months accumulating to N45.25trillion. This is a rise from DMO’s earlier report that the national debt stocks had risen to N41.6 trillion by the end of the first quarter ended March 31, 2022.

Monthly issuance reports by the Debt Management Office (DMO), the Central Bank of Nigeria (CBN), key investment and finance organisations have revealed that the Federal Government raised about N3.34 trillion through its regular issuance of domestic debt instruments between April and August.

The reports specified that the government raised N1.116 trillion through bond issuance within the five-month period. It also raised N1.999 trillion through the Nigerian Treasury Bills (NTBs) and mopped up N220.01 billion through the Open Market Operation (OMO).

The DMO indicated that it used the CBN’s official exchange rate of N415.75 per dollar as of March 31, 2022, as the conversion rate for the country’s external debts for the first quarter. The Apex bank’s official rate remained at N423.48 per dollar as of August 31, 2022. A breakdown of the total debt stocks took reflection based on the increase in external debts to currency depreciation from N16.62 trillion in the first quarter to N16.93 trillion as of the end of last month.

The domestic debts, because of new issuances, rose from N24.987 trillion in the first quarter to N28.322 trillion by the end of August. The debt stock, which stood at N32.92 trillion by December 2020, rose to N39.556 trillion by December 2021 and rose further to N41.6 trillion by the end of the first quarter of 2022.

The Federal Government keep accounting for more than 88 per cent of the debt stock. The astronomic rise in debt stock from about N12.6trillion in 2015 to over N45trillion in 2022 calls for alarm, particularly when all economic indices do not reflect positive impacts of the loans.

That the country is unfavourably predisposed towards debt trap is more perceivable than otherwise, as the prevailing conditions apparently are clustering the economy with circumstances which may entangle it with strains that may push forth closer to trap zone than pulling it out from same.  It is apparent the country is gliding towards the danger zone.  Depreciation of the Naira appears to be amounting to increased external debt stocks, as the local currency falls in value before the large chunk of loans acquired in dollars, the payment of which would be effected in Naira value. That the borrowings so far have not reflected positivity in the productivity of the economy calls for worry. Key economic indices keep trailing the negative trend.

It is inarguably that prevailing conditions apparently reflect that certain leakages have formed factors assuming variables of defecting strings against the optimisation of the impacts of loans which have so far been acquired. The variables are apparently stronger in force than the advantages that the loans would have yielded, thus defying the vitalising  force of these borrowings. It is only rational that the government identify and address the systemic leakages for a change in narrative. More importantly, the  prevailing conditions have placed before the government the necessity to tread cautiously.