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Nigeria and the burden of debt by Oke Umurhohwo

If there is anything that should ignite national discussion in the 2019 budget than others, it is the debt conundrum and future implications. From the budget document, we’re reminded of the unprecedented debt binge over the past years and how it is already taking tolls on the country’s derivation– a clear reflection in the allocation set aside for servicing debt this year alone.

In the 2019 budget, a staggering N2.140 trillion was set aside to settle debt obligation, indicating that about a quarter of the budget provision for the fiscal year would go to debt repayment. This moved up by N130 billion when compared with the N2.010 trillion that supposedly went into debt servicing in the 2018 fiscal year.

But that is not the issue. When you look at the debt servicing to revenue ratio, you would be as apprehensive as many experts who have offered cautionary advice to the federal government on the accumulation of debt. As at the last evaluation, Nigeria’s debt stock stood at $81.27 billion (N24.947 trillion), pushing the debt servicing-to-revenue ratio from 67 percent to 70 percent. In plain terms, for every N100 earned into the public coffer, about N70 would likely go to debt payment.

Oftentimes, the government discard the debt servicing to revenue ratio and instead, adopt the debt to GDP (Gross Domestic Product) to dissuade concerns on growing indebtedness. They persuade citizens with the narrative that Nigeria’s debt portfolio currently stands at 19.03 percent of the GDP and still below the 25 percent threshold set by the government on medium-term 2018-2020, insisting that there is no cause for alarm.

But that logic seems to be a clever approach to dodge genuine concerns. The simple truth is that, as long as the country’s debt mount, so would revenue prospect slump and the unborn generation would be thrown into uncertain financial situation. Already, the effect of past debt binge is limiting revenue availability and this is obvious from the N1.859 trillion deficit in the 2019 budget proposal, which the Debt Management Office (DMO) had hinted would be sourced from external loans.

With the worrisome trajectory of debt, it seems Nigeria has failed to draw from the hard lesson of the pre-2005 debt crisis. Before the debt relief granted by the country’s lender, London and Paris Club creditors, Nigeria was one of the most heavily indebted countries. At that time, Nigeria owed a princely sum of $35.994 billion, yet, its revenue was less than $9 billion, putting the debt-to-revenue ratio at over 400 percent and when measured with the GDP, which stood at $62 billion then, it was 58 percent.

That era was one of the darkest moment in Nigeria’s history as the country’s economy and revenue were at the mercy of creditors. Then-president, Olusegun Obasanjo, understood the country’s public debt is unsustainable as it requires 152 percent of what it earned as exports and 400 percent of annual income to clear the debt, hence, negotiated for a relief but before that could happen, Nigeria parted with a whopping $12.4 billion to be forgiven of the balance.

But that relief was temporary as debts are again piling up. While the current stock of the nation’s debt can’t match that of pre-2005 but the rate at which it is building up raises cause for concerns. For instance, by June 30, 2015, Nigeria’s total debt stood at N12.12 trillion but by March 31, 2019, DMO’s data showed that the country’s indebtedness had double that figure at N24.947 trillion.

This trend prompted lawmakers of the upper legislative chamber to raise their voices against the rising debt stock of the country on March 2019, which they feared would “put the nation’s generations unborn in very great danger”, if not checked. Ike Ekweremadu, who was at that time the Deputy Senate President, corroborated the fears of many Nigerians on the surge of the nation’s debt portfolio and suggested thorough scrutiny of the government borrowing plan going forward to avert a return to the pre-2005 debt crisis.

This is no different from the concern raised by the African Development Bank (AfDB) and other international institutions, who at different times questioned the sustainability of Nigeria’s debt binge. In its 2019 Economic Outlook for countries in West Africa sub-region, the AfDB said “The increase has heightened the fiscal burden in an already fiscally and growth-constrained environment. This raises important concerns regarding the sustainability of external debt.”

But they are not alone with such concern. Nigeria’s apex bank, the Central Bank of Nigeria (CBN) had at the end of its January Monetary Policy Committee (MPC) meeting, cautioned the government on the borrowing spree, which it warned could return Nigeria to the pre-2005 debt trap. Godwin Emefiele, the bank’s chief noted that “on external borrowing, the committee noted the increase in debt level advising for caution, noting that it could fast be approaching the pre-2005 Paris Club level.”

Without doubt, the penchant for accumulating debts by the Nigeria government is inimical to future revenue expectations and also mortgage the unborn generations. This is so, given to the unstable nature of oil prices in the global market and the collapse of the productive sector, which would have augmented any shortfall in oil revenue. In plain terms, piling up debt mount pressure on future derivations and most disturbing, leave the unborn generations incapacitated to pursue their fiscal policy.

I’ve listened to some arguments throwing up infrastructures as enough justification for accumulating debts. That is a scary drift of thought and should set off alarm bells for all Nigerians. If derivations from crude oil as at present could not provide for infrastructures and other basic needs because a larger part of it goes to paying a debt, would it not be pushing the stake higher with another round of debt binge?

Vast increases in debt will ultimately compromise Nigeria’s ability to easily fund future programmes, let alone be able to match contemporaries and worse, threaten their standard of living. It’s like a couple in their 40s deciding to borrow money to sustain a lavish lifestyle and then leaving the debts for their kids to pay off after they are gone. Eventually, the interest on all debt will force the governments of future generations to strict austerity policies to pay for today’s profligacy.

Oke Umurhohwo is a Political Analyst and Strategist. He tweets via
@OkeStalyf and can be reached via oke.umu@gmail.com

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