The latest update on the huge debt profile of Nigeria has been made available by Debt Management Office, resulting in the rejection of new loan requests by the China Development Bank, and frantic efforts by the Federal Government to borrow more raise additional concerns about the country’s finances and its future.
Enabled by a pliant National Assembly, President Muhammadu Buhari has not only amassed a national record-breaking debt burden in eight years but is also seeking more in his last weeks in office. He should be stopped. Federal legislators rubber-stamping his loan approval requests should in the national interest stop granting any further licence to the regime.
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The DMO disclosed that the total national debt stock stood at N46.25 trillion by December 2022, translating to 23.20 percent of GDP, up from N44.06 trillion in September 2022, which was 22.47 percent of GDP. The domestic debt component was N27. 55 trillion, while the total external debt stock was N18.70 trillion. The slight increase was due to new loan acquisitions by the federal and state governments to fund budget deficits and execute projects.
Total public debt said the DMO, therefore increased in dollar terms by $7.34 billion within one year; from $95.77 billion in December 2021, to $103.11 billion a year later. On Buhari’s thriftless watch, external debt rose from $10.3 billion in June 2015 to $40.06 billion by June 2022. Total public debt was $63.8 billion in June 2015.
Alarmingly, the Buhari administration and the state governors continue to explore new international loans despite having just a few weeks left in office. One example is the recently reported $800 million grant given by the World Bank to the Federal Government for another dubious “subsidy palliatives” funding.
The consensus on Nigeria’s economy and its rising debts is bleak. The World Bank in a 2022 report said that Nigeria’s debt was at risk of becoming “unsustainable” in the long term as macro-fiscal shocks may disrupt its debt-to-GDP ratio. Like others, it finds the government’s excessive recourse to the ‘Ways and Means’ advances from the Central Bank of Nigeria most treacherous to public finances and the economy.
The World Bank also expects debt servicing to increase from 100.2 per cent in 2022 to 123.4 per cent of federal revenue in 2023, having gulped 118 per cent in the first quarter of 2022. This could hit 160 per cent in five years except broad-based reforms are implemented to “unfreeze” the financial landscape, it warned. The government admitted in 2022 that 119 per cent of revenue was spent on debt servicing.
Distraught, the organised private sector warned that the country would continue to struggle with repayment, fiscal and infrastructure deficit, and possibly national bankruptcy. But both Buhari and the NASS are not listening. For Nigeria’s sake, they should.
Economists agree that borrowing is not intrinsically evil; it is indeed sometimes inevitable such as when internal or external shocks strike. “Reasonable borrowings to finance public and infrastructure development are the key to faster economic growth,” declares a paper in the Cogent Economics & Finance open-access journal. Properly channelled into critical infrastructure, job-creating projects, export-stimulation, and productive sectors, it is regarded as an “economic stimulant,” invigorating aggregate demand and output.
Conversely, experts warn that loans when used for consumption, and unviable projects, in the long run crowd out private investment,and inhibit growth through higher interest rates, higher inflation and distorted taxation.
