A few days ago, Ms. Patience Oniha, Director-General of the Debt Management Office, DMO raised some concern over the sustainability of Nigeria’s rising debt profile.
Oniha raised this concern in a virtual media chat yesterday. She noted that the country risked the debt sustainability issue if it failed to grow the current low revenue profile, which places the country in the poorest category among its peers.
“We should focus on revenue. The good thing about it is that the Minister of Finance, Budget and National Planning has started a programme aimed at growing the revenue profile. We must discipline ourselves to follow through to grow our revenue.
If we continue to borrow and do nothing about growing our revenue base as other countries have done, we may have a debt sustainability challenge,” she said.
Coming from a Federal Government agency, this perhaps calls for consideration.
What can be perceived as the strongest condemnation to the Federal Government’s borrowing expedition came from within the President’s own party.
According to Senator Ali Ndume, the senator representing Borno South, on the platform of the All-Progressives Congress (APC), the rate of borrowings by the federal government is increasing and worrisome. What is more worrisome according to the senator is that there is little or nothing to show what the loans have been used for.
He further faulted the Senate for rushing to approve these loan requests
“I’m not an expert in debt analysis. Honestly, the rate of our borrowing is increasing and is worrisome. But it is not the borrowing that is the problem as I always say, it is what you do with what you borrow.
It is not the borrowing. And this request for a loan that the president sent to the National Assembly is part of the approved external borrowing.
You guys should look at what the borrowing is for in the first place. Is it necessary? Are the terms good? Borrowing is not a crime but when the rate of debt servicing increases. And I understand it is getting to 80, 90 per cent. You have to be cautious. You have to look at alternatives,” he said.
Mr. Ndume also frowned at the Senate’s attitude of speedily approving the president’s loan requests without thoroughly scrutinizing the requests or even rejecting the requests.
“Another thing I’m worried about is the way the Senate is handling it. The Senate, by definition, is the House of deliberation.
When things like this (loan request) comes, you don’t just say, because you want to be good, you approve it. No.
You’re supposed to look at it critically. Cross the Ts, dot the Is, ask questions, carry the people you are representing along, ask if they agree. Not that we just sit down and just approve it.
We thought it might be good but the way we do it makes the people we represent look at us suspiciously. There are situations where the time is short and we need to act fast, then we’ll have to carry the people along. I feel pain when they say ‘you people again’. This is the last one, I won’t don’t again. You call us rubber stamps and all that” he lamented.
Steep Increase Over The Years Worries Expert
Eze Onyekpere, Lead Director of Centre for Social Justice, CSJ, an organization at the vanguard of the campaign for fiscal discipline and transparency in public affairs, stated that Nigeria’s debt had also been increasing in double digits year after year since 2015, with the highest increase recorded between 2015 and 2016.
Citing DMO statistics, Onyekpere observed that public debt stock stood at N12,603 trillion in 2015, N17.360 trillion in 2016, and N21.725 trillion in 2017.
“In 2018, 2019 and 2020, public debt stood at N24.387 trillion, N27.401 trillion, and N32.915 trillion, respectively.
The highest increase occurred between 2015 and 2016. Between 2015 and 2020, Nigeria’s public debt increased by 161 per cent, indicating a yearly average increase of 37.74 per cent.
Between 2015 and 2020, Nigeria’s public debt increased by 161 per cent, indicating a yearly average increase of 37.74 per cent,” he stated.
Onyekpere also during his presentation also expressed worry about the future of debt sustainability of the country.
“The Medium-Term Debt Management Strategy (MTDS) 2020-2023 shows that the government has designed 70 per cent for domestic debt and 30 per cent for external debt while total debt as a ratio of the GDP has been increased from 25 per cent to 40 per cent; the average tenure of debt portfolio is a minimum of ten years,” he said.
The trajectory, he noted, would lead to debt service to revenue increases in the medium term while capital expenditure as a percentage of total federal government spending would be decreasing in the medium term.
Debt Servicing Deficit Also On The Rise
Nigeria’s deficit has been on the rise in the last few years. Already, the 2021 budget has a deficit of N5.6 trillion.
The President, in 2020, had acknowledged the fact that the deficit in the 2020 budget was more than the three per cent threshold as established by the Fiscal Responsibility Act, 2007.
The Act provides that the deficit should not be more than three per cent of GDP.
The measure, he said, was necessary due to the “existential challenge of the coronavirus pandemic and its aftermath; I believe that this provides a justification to exceed the threshold as provided for by this law.
This development is also a source of worry to Dr. Muda Yusuf, an economist and former director-general of the Lagos Chamber of Commerce and Industry (LCCI).
He lamented that the growing stock of debt is a cause for concern as the cost of servicing it is unsustainable.
“The current levels of debt are already at an unsustainable threshold. If over 80 per cent of revenue is used to service debt, then it is about time to slow down on debt accumulation. From reports, this request is new, as it was not covered in the original borrowing. It is an addendum to the original plan, which had already been approved.
Of course, there is merit in borrowing for infrastructure development, but even at that, the capacity to service the debt sustainably should be a critical consideration. The risk is that at this rate, part of the borrowing will inevitably be used to fund recurrent expenditure. Already, actual revenue can hardly cover the recurrent budget. The risk of ending up in a debt trap is quite high” he quipped.
Highlights Of Nigeria’s Debt Profile
As of March 31, 2021, Nigeria’s total public debt stock was N33.107 trillion, or USD 87.239 billion.
Between the end of the first quarter and the end of the second quarter, the debt stock increased by N2.358 trillion.
The external debt, according to a breakdown of the national debt under review, was N13.711 trillion, or 38.66%.
Domestic debt, on the other hand, was N21.754 trillion, accounting for 61.34% of the entire stock.
The Federal Government was responsible for N11. 828 trillion in foreign debt and N17. 632 trillion in domestic debt.
The external debt of states and the FCT was N1.883 trillion, with a domestic debt stock of N4.122 trillion.
The breakdown of external debt revealed that multilateral (World Bank Group and African Development Bank Group) own the majority of the debt, accounting for 54.88%.
Commercial debt (Eurobonds and Diaspora bonds) came in second with 31.88%, followed by bilateral debt (China, France, Japan, India, and Germany) with 12.70%. Promissory Notes account for 0.54% of the total.
