NIGERIA’s growing public debt crisis, with the palpable fear of a possible debt default, is a huge task waiting for the next government as political parties and their presidential candidates get set to kick off campaigns for the 2023 presidential election.
While some of the candidates are offering solutions that ignore the economic reality like the difficultly in raising the revenue profile or the acknowledgement by the Debt Management Office that foreign loans have started to run dry, others are skirting the issue and focusing on the wrong set of data.
Supporters of the ruling All Progressives Congress (APC), for example, are quick to point to the misleading data that Nigeria’s debt to GDP ratio remains low instead of the more significant statistics of debt servicing to revenue ratio that is nearing 100 per cent, suggesting the country has reached a borrowing peak.
The government is also spending on debt servicing as it is on fuel subsidy, which has been the target of successive administrations, international institutions and even the leading candidates for president.
In the last seven years, the President Muhammadu Buhari-led government has accumulated over N30 trillion in borrowings, bringing the total public debt to N42.84 trillion, with the next government expected to inherit over N80 trillion in debts.
This is as the country’s payment for fuel subsidy rose by 1,952 per cent in the seven-year period from N307 billion in 2015 to a total of N6.3 trillion as of the first quarter of 2022.
The Debt Management Office (DMO), during the week, had released the debt stock for the country, which shows that the external borrowing of the country now stands at N16.61 trillion or $40.064 billion while domestic obligations, which is asides the ways and means taken from the Central Bank of Nigeria (CBN), now stands at N23.26 trillion or $63.24 billion.
The current level of debt shows that between March 2015 – just before President Buhari took the reins of leadership of the country – and June this year, the country has so far borrowed N30.78 trillion, both locally and externally.
The debt stock of the country had within this period grown by 255.5 per cent as external borrowings soared by 701.36 per cent from N1.864 trillion as of March 31, 2015, to N16.61 trillion as of June 30, 2022. Domestic debt grew during the seven-year period by 157.2 per cent from N10.19 trillion as of March 2015 to N26.23 trillion as of June 30, 2022.
Similarly, the amount spent on servicing the debt obligations of the country had soared during this period. Annual debt service payment for domestic obligations had doubled from N1.018 trillion in 2015 to N2.054 trillion by the end of 2021, while in the first six months of 2022, the federal government paid out N1.33 trillion in interest on its local borrowings.
The amount spent on servicing external borrowing had likewise risen from $331.059 million, which was expended in 2015, to $2.019 billion in 2021. In the first half of this year, the government had already spent $1.291 trillion to service its external borrowings, representing an increase of 900 per cent.
In total, the country has so far in the seven-year period spent N12.446 trillion and another $8.819 billion in servicing both its local and external debts respectively.
The International Monetary Fund (IMF) predicted that Nigeria’s debt service-to-revenue ratio would jump to 92 per cent in 2022 from 76 per cent in 2021. Added to all this is the admission of the DMO last week that the country was unable to attain any foreign loan in the second quarter of 2022, leaving very little room for manoeuvre for the next government.
On fuel subsidy payment, a report from the Nigerian Economic Summit Group (NESG) disclosed that the federal government spent a total of N3.64 trillion on fuel subsidies between 2015 and 2021.
It said: “From the government fiscal position, between 2015 and 2021, Nigeria spent a cumulative sum of N3.64 trillion on fuel subsidies, rising from N307 billion in 2015 to N1.77 trillion in 2021 – representing a whopping increase of 1,085 per cent.
However, with the sustained rise in crude oil price since this year, the federal government said it spent over N2.65 trillion to subsidise petrol consumption in the first quarter of 2022. This brings the total subsidy payment to N6.3 trillion at the first quarter of this year.
With the continuous rise in the debt accumulation of the country, economists and industry watchers have incessantly called for caution on the borrowing spree of the government.
With the present government expected to hand over the reins of leadership of the country within months, at this level of debt, the next government will be inheriting over N80 trillion in debts.
With a current debt stock of N42.84 trillion as of June this year, a Ways and Means borrowing of over N20 trillion, FGN Bonds worth over N585.92 billion issued since April and a projected deficit of over N11 trillion to finance the budget of 2023, the country is already looking at a debt burden of over N74.5 trillion. This excludes the bonds that would still be raised before this year runs out.
Already, the country is at risk of borrowing to pay interests on its debt obligations as the minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed had sounded the alarm bells when she revealed that the country’s debt service cost in the first four months of the year was N1.94 trillion, N310 billion higher than the actual revenue received during the period.
According to her, the federal government’s retained revenue for the period was only N1.63 trillion, 49 per cent of the pro rata target of N3.32 trillion. This means that the government had spent 118 per cent of its revenue on servicing its debt. Irrespective of this, the minster, while presenting the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), disclosed that the federal government will borrow over N11 trillion and sell national assets to finance the budget deficit in 2023.
She also said the government’s budget deficit is expected to exceed N12.42 trillion if it should keep the petroleum subsidy for the entire 2023 fiscal cycle. She explained that the first option involves retaining the petroleum subsidy for the entire 2023 fiscal year.
Ahmed said in the first scenario, the deficit is projected to be N12.41 trillion in 2023, up from N7.35 trillion budgeted in 2022, representing 196 per cent of total revenue, or 5.50 per cent of the estimated GDP. In this option, she added, the government would spend N6.72 trillion on subsidy. She further said that the second option involves keeping the subsidy till June 2023 adding that this scenario will take the deficit to N11.30 trillion, which is 5.01 per cent of the estimated GDP. In this option, the PMS subsidy is projected to gulp N3.3 trillion.
Pinning down the position of the Bola Tinubu campaign on major economic issues has so far proved elusive. Officially, the campaign has stuck to the position that it is yet to release its campaign manifesto and economic blueprint.
His campaign is, however, inheriting and defending the policies of the present APC government.
The APC presidential candidate himself had also not addressed business stakeholders or any major policy forum. But Bayo Onanuga, the director of media and publicity of the presidential campaign, spoke with LEADERSHIP Sunday and expressed what he termed as his personal view.
Onanuga said the issue of Nigeria’s debt is simply being used to attack the Muhammadu Buhari presidency, but that in reality, Nigeria does not have a debt crisis in comparison to countries like Ghana and South Africa, which, he said, are in a worse situation.
Quoting data from the Nigeria Bureau of Statistics, Onanuga said the percentage of debt to GDP is at 23 percent, which is manageable. The USA, he pointed out, has a debt to GDP ratio of well over 120 percent.
Onanuga said, “There is nothing wrong with debt. Every country accumulates debt and we don’t need to worry. Nigeria does not have a debt crisis. The problem is the country’s inability to harness its revenue options.”
The campaign director was however optimistic that a Tinubu presidency would be much better than the Buhari government, which has introduced new taxes, blocked leakages and even adopted the Treasury Single Account, towards raising the revenue profile of the federal government.
Atiku Abubakar, the presidential candidate of the opposition People’s Democratic Party, sounded all the right notes at a recent event organised by Lagos Chamber of Commerce and Industry (LCCI) Presidential Economic Agenda Forum for the PDP.
He talked about cutting the cost of governance, blocking leakages, launching a $10bn stimulus fund – without identifying the source, and suggested a mouth-watering non-debt financing model, which could worsen the country’s revenue challenges
Interestingly, the government of President Buhari forfeited at least N16.76 trillion in revenue from 46 big corporations in waivers and tax incentives between 2019 and 2021, according in the tax expenditure statement (TES) report in the Medium-Term Expenditure and Fiscal Strategy documents of the Budget Office of the Federation.
Many of these incentives were given to allow private investments for the development of key infrastructure – like the PDP candidate is now proposing.
Atiku at the September 13, 2022 event said, “Within the first 100 days of in office, I will create an Economic Stimulus Fund with an initial investment capacity of $10 billion to prioritise support to MSMEs across all the economic sectors, as they offer the greatest opportunities for achieving inclusive growth.
“I will undertake far-reaching fiscal restructuring to improve liquidity as well as enhance the management of our fiscal resources in five bold steps.
“First, undertake an immediate review of government spending with a view to eliminating all leakages arising from subsidy payments.
“Second, stop all fiscal support to ailing state-owned enterprises. As with subsidy payments, by holding onto these underperforming enterprises, Nigeria is sacrificing investments in critical areas, including water, sanitation, and rural infrastructure. For example, the first phase in the rehabilitation of Nigeria’s refineries is expected to gulp $1.55 billion! I will sell them.
“Third, take steps to improve spending efficiency by gradual reduction of government recurrent expenditures. Over the medium term, recurrent expenditures should not exceed 45 per cent of the budget.
‘Finally, focus on non-debt financing by promoting a private-sector led infrastructure development fund for the financing and delivery of key infrastructure projects.”
Economists, however, have campaign-free views on how some of these revenue and debt challenges can be confronted.
A member of the Monetary Policy Committee, Professor Mike Obadan, called for the rationalisation of the structure of spending, especially of non-capital expenditure items, to eliminate waste and minimise the need for ways and means advances and debt accumulation.
According to him, the quality of public expenditure needs to improve significantly to enhance the output-capital ratio.
Speaking on the legacy of debt, renowned economist and former director general of the West African Institute of Financial and Economic Management, Prof. Akpan Ekpo, stressed the need for the government to ‘cap its borrowing’ at the moment.
Noting that there is nothing wrong in borrowing provided it is to finance hard infrastructure that has a long-term positive effect, he stated that “the problem with Nigeria’s borrowing is that there is not much transparency; we don’t know what they are borrowing for.
“Also important is the fact that debt service is too high. If you look at every budget, almost one tenth is used to service debt and we have not even started touching the debt itself. So, we have to be cautious. The government will argue that debt to GDP allows them room to borrow but GDP does not pay debt; revenue pays debt and if you take revenue to debt ratio, we can’t even borrow at all because two-thirds of revenue comes from oil and the revenue from oil is not a sure revenue.
“I don’t envy any government coming in. Debt is a problem on the one side and other problems on the other. And more importantly, these debts will be paid by the future generations. If we are not careful, the future generations will abuse us in our graves because they will see the debt and not see what it was used for: no good roads, no good railways, no water, education is in disarray, the health system exposed by the Covid-19 is in trouble.
“Time flies and in no time 20 years have passed and we are still servicing the debts. We should not borrow because we have space to borrow, or because we have B+ ratings by rating agencies; they are getting us more and more indebted.”
According to the head of Financial Institutions Ratings at Agusto&Co, Ayokunle Olubunmi, debt servicing is a burden for Nigeria.
“It is like kicking the can down the road because if you look at the utilisation of most of the borrowings, it is for recurrent expenditure – which is not sustainable.
“Also, looking at the funds allocated for projects, you will see that the quality of the projects is not top notch. In the short run, it may seem as though we can manage but the government is creating a problem for the future. If you look at the debt servicing to government revenue in 2020, you will realise that it is going beyond the 90 per cent.
“This is just interest payment, not principal repayment; so when we are spending 90 per cent of our income to pay interest on the loans, it might look as if we are enjoying it, but in the next two to three years we would not be able to continue like this.”
The chief executive of Centre for the Promotion of Private Enterprise, an economist, and former director general of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, noted that the rising debt profile of the government raises serious sustainability concerns. Although the government tends to argue that the condition was not a debt problem, but a revenue challenge, “the truth is that debt becomes a problem if the revenue base is not strong enough to service the debt sustainably. It invariably becomes a debt problem.
“What is needed is the political will to cut expenditure and undertake reforms that could scale down the size of government, reduce governance cost and ease the fiscal burden on government. It is important to ensure that the debt is used strictly to fund capital projects that would strengthen the productive capacity of the economy,” he said.
About The Author
