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Finance - January 9, 2022

Nigeria’s Economy in Crisis as Debt Stock Reaches N25 Trillion in 7 Years

Nigeria’s public debt stock tripled in less than seven years with an addition of 25.04 trillion to its initial debt.

Nigeria’s public debt stock has expanded threefold since 2015, thus hitting N25 trillion in 7 years. The country’s debt was N12.06 trillion in the first quarter of 2015. However, this increased by 208% in September, making it N38 trillion.

According to the Fitch Ratings, a global research institution, the government’s dependence on the Central Bank of Nigeria’s (CBN) Ways and Means Facility (WMF) to fund its deficit was a key contributor to growing inflation.

According to the Debt Management Office (DMO), the WMF was problematic and proposed transforming Nigeria’s debt stock into a 30-year debt instrument.

However, a complete report indicating the WMF outstanding details about the country’s debt status is absent. The DMO is to convert the opaque WMF to a long-term instrument, but no update has been given to this effect. 

In the DMO report, the sum not included as early as 2021 was estimated to be N10 trillion. Patience Oniha, the director-general of DMO, also confirmed this and said, “it was estimated at N10 trillion earlier in the year”.

According to David Adonri, Vice Chairman of Highcap Securities Limited, the near 70% debt servicing to revenue ratio and the fact that the government is refining certain current debt commitments show that the country is already in financial crisis.

He said, “When debt gets to the level we are in now, there is a crisis. When your debtor has to raise a new debt instrument to settle the previous one, the country tends towards sovereign default. And that is alarming”. The government, according to Adonri, must rationalise its spending and eliminate over-trading.

Ejeviome Otobo, a senior fellow at the Global Governance Institute in Brussels, Belgium, and a former Nigerian diplomat, said, “Nigeria needs fundamental change to raise its taxes from their present 7% to 18% to catch up with the rest of Africa”.

As officially disclosed, Nigeria’s current per capita governmental debt stock amounts to N190,300 or 53% of a civil servant’s annual minimum wage. This is the minimal sum expended by the government on behalf of every Nigerian, including the 23 million unemployed.

However, Okonjo-Iweala has stated that the actual cost of Nigeria’s mounting public debt is the country’s failure to fund initiatives that would improve the socio-economic lives of ordinary Nigerians.

Zainab Ahmed, the Minister of Finance, Budget, and National Planning, revealed at an African Development Bank (AfDB) forum that the report on the national debt did not include some state obligations. She said efforts to document all states’ debts are already in process.

According to the World Bank, poor transparency is an issue in discussions about debt sustainability in developing nations, particularly Nigeria. To this effect, Akinwumi Adesina, the President of the African Development Bank (AFDB) and Ngozi Okonjo-Iweala, the Director-General of the World Trade Organization, cautioned that Nigeria might be on the verge of debt difficulty.

Dr Bongo Adi, an economist at the Pan-Atlantic University, emphasised that revenue consideration is a crucial issue, far more critical than GDP when it comes to debt sustainability. 

Prof. Sheriffdeen Tella of Olabisi Onabanjo University believes that the government should emphasise more on health and education while reducing road and airport development spending. According to the professor, the ongoing uncertainty about revenue makes the times more dangerous.

“Government should also align the cost of governance with the economic realities. We cannot continue to run a bogus structure while borrowing money. We can also explore public-private partnerships (PPP) for essential infrastructure in delivering infrastructure. In reality, we can do without some of the infrastructures till when the economy improves, and we can execute them,” Tella said.

While debt servicing is growing and gradually weakening the government’s remaining resources, incomes are declining. Also, the fiscal budget is increasing at an alarming rate. In 2020, the Federal Government posted an all-time high budget deficit of N6.6 trillion, equivalent to 14.2% of GDP.

READ ALSO: Nigeria’s Public Debt Increases to N24.9tn – DMO

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