A new report has shown that Nigeria’s public debt stock is disturbing and may likely hit over N38 trillion by the end of 2021. The report also indicates that Nigeria’s debt portfolio, which was N33.1 trillion as at March 2021, increased by over 17 per cent between the end of last year and this year. Despite the increasing debt stock, it is disturbing that the government has announced new plans to borrow from both external and domestic markets. The Minister of Finance and National Planning, Mrs. Zainab Ahmed, has disclosed that by the end of this year, the debt stock could reach N38trillion. However, some experts are of the view that it could be more than that and have even projected that it will hit N40trillion by December 2021.
The dwindling of government’s revenue due to volatility in oil prices in the international market will likely worsen the situation. And with less money accruing to the government from oil, it will be difficult to sustain the escalating debt. Not quite long ago, the World Bank warned that Nigeria would face imminent high-debt risk exposure due to failure to meet contractual debt obligations to creditors. But the position of the global financial institution was faulted by the Debt Management Office (DMO). In spite of that official disputation, statistics show that Nigeria is facing serious debt crisis unless the government prioritise its borrowing plans and invest in productive sectors. As at May 2021, Nigeria’s debt service to revenue ratio was 96 per cent. This means that for every N1 earned, N0.98 is spent on debt servicing. In real terms, it means that about 90 per cent of total revenue is spent on debt servicing, a situation that is unsustainable. The matter is not helped by increasing overheads and rising infrastructure deficit. This is the worst the country has faced in decades. And the economic consequences are dire due to the apparent lack of definitive policy on how government intends to efficiently manage expenditures and reduce cost of governance. The diversification effort, especially in the non-oil sector, has reportedly yielded little dividends because of rising insecurity across the country. Given the rise in global interest rates, which has made central banks in advanced economies to ponder the normalisation of monetary policy, debt service costs on external loans will rise, thereby pushing Nigeria’s debt beyond the point of sustainability. The prediction by experts is that Nigeria’s total debt stock could hit N40trillion in the coming months following the approval of the government’s plan to borrow another $6.2 billion. Between January and May this year, government reportedly spent N1.8trillion on debt servicing. The figure represents 98 per cent aggregate revenue within the period, which is 44.6 per cent lower than the projected revenue of N3.32trillion for the period. COVID-19 related shocks have weakened economic performance and revenue target. More so, not much has been done to broaden the revenue base in such a way that it will not affect the cost of living of the citizens.
No doubt, worsening debt profile remains one of the challenges of the economy, especially since President Muhammadu Buhari came to power almost six years ago. Government policymakers have not shown enough creativity in managing the nation’s debts. For example, from $18.89 billion it inherited in May 2015, the nation’s debt stock has increased to over $32billion as at December 2020. So far, Nigeria has taken loans worth $31.98 billion from the World Bank Group, International Monetary Fund (IMF), African Development Bank (AfDB) Group and others. It also has an outstanding $11.6 billion loan from the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD). Besides, Nigeria owes China, France, India and Germany $4.0 billion. This accounts for 12.74 per cent of the nation’s external debt reportedly put at $32.86billion. Considering the impending economic crisis that will follow binge borrowing, the government must borrow cautiously and invest the loans in profitable ventures. Even though we are not against borrowing, we advise that such loans must be judiciously used for projects that can repay them. Excessive borrowing by the government will likely mortgage the future of the country. If the incessant borrowing is not checked, Nigeria will enter another debt trap. To avoid debt overhang, there should be a moratorium on borrowing by federal and state governments. Unrestrained borrowing will definitely hurt the economy.