[EDITORIAL] Nigeria’s rising debt profile

Many Nigerians are fidgeting over Nigeria’s rising debt profile. They recall how the endemic indebtedness of the Bretton Woods institutions stifled the development of the country in the decades before the return of democracy in 1999, when a large part of the country’s income was devoted to servicing the accumulated debt and little on economic Development remained. So it was a relief for many when the Obasanjo government signed the debt repurchase agreement that freed the country from the shackles of the Bretton Woods institutions.

The country’s income was expected to be invested in the development of the county from now on, rather than being used to pay interest on the debt.

Those who are now sounding the alarm about Nigeria’s extensive borrowing assume that the country is following a familiar path and that it will soon be caught in yet another debt trap.

In June 2021, Nigeria’s total debt was N35.5 trillion, with local debt accounting for the larger of N21 trillion. By the end of the third quarter of 2021, the number had risen to N38.005 trillion, according to the Debt Management Office (DMO).

And according to the Appropriation Bill 2022, the federal government intends to increase its debt portfolio by a further NN17.13 trillion budget this year.

Over the past five years the country has spent $ 5.2 billion to service its external debt and N $ 13 trillion on its domestic debt.

Experts worry about Nigeria’s debt servicing of N3.8 trillion in 2022

In 2021 alone, N 4.20 trillion was spent on debt servicing, more than the N 3.40 trillion spent on capital projects that same year.

There have been concerns about Nigeria’s rising debt profile, particularly its debt service-to-sales ratio and foreign currency liquidity constraints, both of which were exacerbated by the COVID-19 pandemic.

The federal government justifies its borrowing by saying that it takes out loans within acceptable limits – with a debt ratio of 35 percent in 2021, Nigeria’s debt is sustainable. Finance Minister Zainab Ahmed, who has advanced this argument, has repeatedly stressed that Nigeria has not a debt problem, but an income problem. In short, Nigeria is not making enough to meet its commitments. She is right on the second point, but economists reproached her in the first case. They argue that at more than 80 percent of the country’s national income, debt servicing is not healthy.

In fact, the debt service ratio from January to May 2021 was 97.7 percent. At these numbers, the country’s public debt profile is unhealthy no matter what the government says. Nigeria actually has a debt problem.

None other than the President of the African Development Bank (AfDB), Dr. Akinwunmi Adesina, expressed concern about Nigeria’s debt servicing in October 2021.

Speaking at the Mid-Term Ministerial Performance Review retreat in Abuja, Adesina agreed with the finance minister that Nigeria’s debt ratio is pretty moderate at 35 percent, but he said the big question is how the debt can be serviced and what is it would mean resources for domestic investment needed to stimulate faster economic growth. He added that the situation was placing the Nigerian economy in a fragile position.

He said that the debt-servicing-to-revenue ratio is currently high for Nigeria and that for the country’s economic recovery, the country’s income streams would need to be diversified away from oil to non-oil inflows. Adesina is right. Unfortunately, all governments in office since 1999 have always emphasized the need to diversify the economy in order to expand the country’s income base to meet the development needs of a growing population, but none have achieved much in that regard.

Also of concern is that the loans do not appear to be invested in companies that are able to service and repay the loans at the end of their term.

As a newspaper, we would like to join those who argue that government should look at debt-to-revenue, not debt-to-GDP; after all, nobody pays back loans with GDP. Rather, it is revenue that is used both to service debts and to repay the capital. And if the country spends 70 to 80 percent of its annual income just servicing the loans, then the country is actually falling into a debt trap. Unless urgent action is taken to reverse the situation, Nigeria would soon be borrowing to service debts, leaving little to meet the needs of its citizens.

Nigeria needs to review its borrowing, find other sources of income, reduce waste and do more to suppress transplants. Above all, the country must have security in order to create fertile soil for economic recovery.

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