NIGERIA’S 22.7 TRILLION NAIRA DEBT: MATTERS ARISING

By Jereaghogho Efeturi – Ukusare

Most developing economies of the world have low debt profiles when considering the global debt profile and the amount of debt owed by economies which parade high debt profiles. Nigeria’s percentage of global debt is less than 1 percent; however, the challenge is in the fact that Nigeria is not a goods producing country neither is it a service providing country.

Going by the global list of debts owed by countries of the world, Nigeria’s debt level is relatively low. The global debt profile stands at $63 trillion. Of this figure, the United States of America alone takes almost a third at over $19 trillion. This is followed by Japan with over $11 trillion and then China in third place with over $4 trillion.

World Debt Chart

TOP FIVE WORLD DEBT LEADERS

World Debt Leaders

In all of these, for a country that relies solely on crude oil sales, reductions in the global price of crude oil will have adverse effects on the revenue of the economy. The global price of crude oil dropped in 2014 and this had its effects on the Nigerian economy. The then President of the country, Dr. Goodluck Jonathan and his Minister of Finance and the Economy, Dr. Okonjo Iweala were able to steer the economy safely without pushing up the debt profile of the country to a level that could be considered dangerous for the economy of the country. At the time of change of government, Nigeria’s debt stood at 12.12 trillion Naira; not too bad for the economy. It must be recalled that Dr. Okonjo Iweala had previously helped this Nation in getting debt relief in 2004.

However, when the new President, Muhammadu Buhari came on board in 2015, he thought it wise to borrow to fund budget deficits. Buhari’s borrowing spree includes the borrowing of 7.51 trillion Naira from May 29, 2015 to June 30, 2017, pushing Nigeria’s debt profile to 19.63 trillion Naira. This is about $64.19 billion at NGN305.9/$1, made up of external debt stock of 4.6 trillion Naira (about $15.05 billion) and domestic debt stock of 15.03 trillion Naira (about $49.15 billion).  As of September 2017, the debt stock for both the Federal and State governments had risen to over 20.373 trillion Naira. In addition, the Federal Government floated the $3 billion Eurobond in November 2017, 10.69 billion Naira Green Bond in December, 2017 and another $2.5 billion Eurobond in February this year, all of these totaling an additional 2 trillion Naira plus; bringing the entire sum to 22.7 trillion Naira ($74.20 billion at NGN305.9/$1).

By the end of 2015, Nigeria’s debt to Gross Domestic Product (GDP) ratio stood at 12.1 percent, according to the Bretton Wood institution.  The year 2016 ended with a debt to GDP ratio of 18.6 percent and with a GDP for the year ended December 31, 2016 which stood at 67.98 trillion Naira, according to the National Bureau of Statistics. By the year ending December 2017, Nigeria’s debt to GDP stood at 19.6 percent according to the International Monetary Fund (IMF). The IMF’s projection of 24.1 percent for 2018 shows that within the period of three years, Nigeria’s debt would have increased 100 percent. The Debt-to-GDP Ratio is the ratio between a country’s government debt and its GDP. A low Debt-to-GDP Ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt. As it stands today, Nigeria’s Debt to GDP ratio is currently at a level that does not give room for much with regards to capital expenditure while maintaining recurrent expenditure at the current level.

TOP FIVE COUNTRIES WITH THE HIGHEST DEBT TO GDP

 

Debt to GDP of World Debt Leaders

The International Monetary Fund (IMF) expressed doubt in the capacity of Nigeria to repay. This is because looking at Nigeria’s income in the years ahead, which from analysis, experts put at a maximum of $50 to $60 per barrel of crude oil from 2020 to 2028 consequent on the shift from fossil fuel to batteries in self drive Electric Vehicles (EVs), the sale of shale oil in the world market as experts say shale exports are expected to double in the next five years. These pose huge challenges for the Nigerian National Petroleum Corporation and its ability to make good sales of the country’s crude oil. This portends poor revenues in the coming years. With poor revenues comes economic downturn in the country. The effect of this will be felt by even the newborn within such an economy.

Now considering the ratio of interest payment to revenue, Nigeria services its debt with over a trillion Naira annually – approximately 15% of the national budget. This trend is certainly not sustainable if borrowing continues and or if revenues further drop. The signal is clear. So, while having one of the lowest debt levels in the world, increase in the debt level of the country spells economic doom. Value Added Tax (VAT), excise and income tax are easy areas for the government to use to shore up revenues as suggested by the IMF. However, considering the fact that Nigerians have been going through hard times, increasing VAT, income tax and excise will be further squeezing an already squeezed populace and further impoverishing the citizens.

The debt in itself is not a problem. The ability for Nigeria to run its affairs without incurring more and the capacity to repay is what really matters. The diversification of the economy would be the best approach to tackle this challenge. On the side of service provision, the now indefinitely suspended Nigeria Air project would have been one of the ways through which the Federal Government of Nigeria could have begun the diversification of its revenue. Harnessing already made investments in the area of technology is another. Nigeria’s NIGCOMSAT 1 and 2 are huge income earners if operated with proper implementation of good corporate governance policies, to mention a few. On the side of products, in addition to natural gas, refined iron and aluminum will also earn the country good revenues. These are a few areas – and there are many more areas – that the government of Nigeria could consider in the bid to diversify the economy before the amount paid for debt servicing equals its income level.

 

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