Except there is a last minute miracle, the President Muhammadu Buhari government, already well known for being out of its depth on the economy, is very likely to hand over to the next government a highly risky economy, what economic analysts would rate as ‘junk’, and with a debt burden of at least N46 trillion.
Revenue and debt management have become persistent challenges that have remained one of the most critical policy issues threatening the debt sustainability of the Muhammadu Buhari-led government and a major headache awaiting the incoming administration.
Data from the Debt Management Office (DMO), as at March 30 2023, showed Nigeria’s debt, comprising the domestic and external debt stocks of the federal government, sub-national governments and the Federal Capital Territory, had risen to N46.25 trillion or $103.11 billion in the fourth quarter of 2022, on the back of increased borrowings by the federal and state governments.
The figure, according to the government agency established to centrally coordinate the management of Nigeria’s debt, represents a 14.46 percent increase compared to N39.56 trillion or $95.77 billion recorded in the corresponding period ended December 31, 2021.
The DMO noted that in terms of composition, total domestic debt stock stood at N27.55 trillion or $ 61.42 billion, while total external debt stood at N18.70 trillion or $41.69 billion.
The debt office further showed that the total public debt to gross domestic product (GDP) ratio for December 31, 2022, was 23.20 percent, a slight increase from the figure for December 31, 2022, at 22.47 percent.
The DMO attributed the increase in the debt stock to new borrowings by the federal and sub-national governments, primarily to fund budget deficits and execute projects. It also indicated the issuance of promissory notes by the federal government to settle some liabilities as a contributor to the growth in the debt stock.
However, the DMO pointed out that on-going efforts by the government to increase revenues from oil and non-oil sources through initiatives such as the finance Acts and the strategic revenue mobilisation initiative are expected to support debt sustainability.
The DMO also stated that the ratio of 23.20 percent is within the 40 percent limit self-imposed by Nigeria, the 55 percent limit recommended by the World Bank/International Monetary Fund (IMF), and the 70 percent limit recommended by the Economic Community of West African States (ECOWAS).
It is becoming clear as crystal that Nigeria’s economy is balanced on a razor’s edge, pressured by a high debt service cost, while its financial receipts have only been able to service a small fraction of the country’s much-needed investment in human development, infrastructure and other critical service delivery spendings.
Statistics provided by the Debt Management Office showed that Muhammadu Buhari inherited about N8.4 trillion (N8,396,591.57) federal government’s domestic debt at the commencement of his administration in 2015. However, the figure has doubled in the course of his eight-year tenure, standing at N16.7 trillion as at December 2022.
With the debt to GDP rising quickly, while the total stock of debt in absolute value has more than doubled between 2015 and 2022, analysts aver that it is a no brainer that the economy is in a critical situation and in dire need of reforms to save the economy, which is struggling to recover, from the impacts of a galloping inflation rates.
Commenting on Nigeria’s rising debt burden, Sola Obadimu, the director general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), opined that a rising public debt profile is not too good for a developing economy by any means, particularly if one cannot easily point to any developmental effects arising from the growing debt profile.
In his words, “Some people may argue that our public debt exposure level or ratio is still low at 23 percent of our GDP; however, a situation where our national budget is gradually being wiped out by the duo of increasing levels of debt servicing and fuel subsidy should be a huge matter of concern based on its likely negative effect on development.”
On the way forward, Obadimu emphasised the need for a higher level of fiscal discipline as well as a need to get value for money spent.
The NACCIMA DG charged the government on the need to exercise more fiscal discipline and be more accountable by getting good value for money spent on development projects.
Uche Uwaleke, chairman, Chartered Institute of Bankers of Nigeria, Abuja Chapter, noted that the rising debt stock is a challenge to economic development, considering that the government is not earning enough revenue.
Uwaleke also pointed out that the debt stock is even at a higher figure than what is presented by the DMO which did not capture the Central Bank of Nigeria’s (accumulated budget support to the federal government through the ways and means (W&Ms) window, that is estimated at N22. trillion).
“My worry about the debt stock really is if you look at the composition, now going to what we should do, I think we should focus more on concessional loans. Loans form multilateral sources, World Bank, The International Monetary Fund, African Development Bank (AfDB) and maybe bilateral sources.
“When we are going for loans, we should focus on concessional rather than commercial debts,” Uwaleke advised.
The professor of finance and capital market, also encouraged the federal government to adopt a cost reduction strategy to bring down the cost of governance.
The Debt Management Office, on its part, called on the federal government to implement an efficient tax administration to tackle its revenue challenges, and also adopt debt management tools such as annual Debt Sustainability Analysis (DSA) and a medium-term debt management strategy (MTDS) every four years, to enable debt sustainability.
Patience Oniha, director general of the agency, speaking at a conference organised by the Capital Market Correspondents Association of Nigeria (CAMCAN), themed: “Nigeria’s Public Debt and the Capital Market,’’ said that the government should, as a matter of urgency, rationalise expenditure and accelerate the growth in revenues, including implementation of strategic actions to boost tax administration and efficiency.
Oniha suggested that borrowings should be tied to projects, adding that some of the projects should be based on generating commensurate revenues to service loans used to finance them.
She also called for sale of government assets to unlock funding, adding that physical assets such as idle or underutilised properties could be redeveloped for commercialisation to generate revenue.
Victor Chiazor, head of research and investment at Fidelity Securities Limited, lamented that the country’s rising debt profile has become a cause for worry, not because debt in itself is bad but because almost all of the country’s revenue is used in servicing the debt.
“Until government revenues improve nothing will change and we would be forced to borrow more to meet more of the recurrent expenditures as against capital projects,” he noted.
According to Chiazor, Nigeria must find ways to increase both its domestic earnings and its forex earnings to ensure a sustainable economy.
Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise (CPPE), reasoned that the rising debt stock can be effectively addressed if the country is able to increase and maximise revenues.
Yusuf advised the incoming administration to unlock more income from revenue generating agencies through enhanced efficiency of their operations. He also stressed the need to reform the tax regime to ensure efficiency in tax administration, reduce tax evasion and tax avoidance and eliminate multiple taxation.
Yusuf, who is the immediate past director general of the Lagos Chamber of Commerce and Industry (LCCI), said the elimination of fuel subsidy will save an estimated N7 trillion annually and the elimination of foreign exchange subsidy will unlock a minimum of N3 trillion revenue annually from the sale of CBN forex at the official foreign exchange window.
“We need to initiate budget reforms to ensure fiscal discipline, curb budget padding, curb duplication of projects and review the service wide votes to ensure transparency,” he said.
The CPPE executive also encouraged the incoming administration to ensure value for money in government expenditure and procurement, commit to reduction in the cost of governance and optimise the utilisation of national assets to unlock liquidity.
