Experts Express Concern Over U.S.$68 Billion Debt


With Nigeria’s debt profile up by 12.25 per cent last year to N24.387 trillion, analysts have expressed worry at the rising debt but the federal government continues to assure that it is within sustainable limits.

As at December 31, 2018, Nigeria’s debt profile had risen by N2.66 trillion from N21.725 trillion as at December 2017 to N24.387 trillion within the one year period. Close to 70 per cent of the 2018 revenue was spent on servicing the nation’s debt. And out of the N8.9 trillion proposed national budget before the parliament for approval, over N2.3 trillion has been set aside for debt servicing, a development economists said was unhealthy for national development and economic growth.

This has caused analysts to raise concern over the debt servicing to revenue ratio.

According to the managing director of Afrinvest Securities Ltd, Ayodeji Ebo, what the country spends on servicing its debt is worrisome.

Ebo noted that if the government continues at the present state, it would not be able to meet its debt obligations.

Stating that the government needs to look at the areas where it is channelling the funds from its borrowings, he advised that they be channelled into productive areas.

“If they (government) continue to go at this rate, not channelling the funds into productive areas, then very soon our revenue will not be able to cover our debt our debt, ” he said.

Ego urged the government to restructure and re-strategize such that the amount that is being borrowed is used as equity in most of the infrastructure project that is being spent on.

“For instance, if we borrow N1 trillion and we use it on 20 to 30 projects that we contribute about 20 to 30 per cent and you get private sector to contribute the rest, that project will be able to repay that loan based on the agreement that they will have and as such, in terms of the multiplier effect, will provide infrastructure for the populace. Then in the long run, we will be able to generate income that will be able to repay the loan.

“But if we continue on this route, that we want to be funding all the projects with debt 100 per cent – fund railway 100 per cent, roads 100 per cent, then there is no way that those projects will be able to repay the loan. So they need to rethink the strategy in terms of how they monitor the project it is used to fund.”

He described the debt servicing ratio as “really worrisome and pathetic.”

“We are not talking about paying the principal; we are spending 68 per cent of our income on servicing alone. It is very obvious why we are not growing. If we keep servicing debt with 68 per cent of our income, then other projects would suffer. Now that minimum wage has increased, if debt servicing is 68 per cent to revenue and another 30 per cent is for personnel cost, then what is left?” he queried.

Nonetheless, the minister of finance, Zainab Ahmed, has continued to maintain that Nigeria’s debt, which currently stands at about N24.3trillion, is still within sustainable limits. According to her, the country’s debt, which is about 19 per cent of the Gross Domestic Product, was still low compared to Ghana and Brazil.

Financial counsellor and director of Monetary and Capital Markets Development at IMF, Tobias Adrian, had stated that “Nigeria’s borrowing to GDP is still low but we cannot guarantee the risk going forward given the global economic downturn. The prudent use of the money borrowed is significant to improving the economy.”

A former president of the Association of National Accountants of Nigeria (ANAN), Dr Samuel Nzekwe, advised the Federal Government to check the rising external debt profile of the country.

Nzekwe said in Lagos that it would be difficult to finance capital and recurrent expenditure when using more than a quarter of revenue generated to service debt.

He urged the government to be cautious in accumulating more debts, saying investors’ confidence may be eroded.

“We need investors to invest in Nigeria so that they can create employment and galvanise productivity as well as more receipts from foreign exchange. A huge debt profile would also affect exchange rate between Nigeria and other countries as our currency would start depreciating,” he said.

The director-general, Nigeria Employers’ Consultative Association (NECA),Timothy Olawale, similarly decried the increasing debt profile of the country, with huge percentage of the budget over the last decade going to debt servicing.

He said borrowing could have been permissive given the state of the economy in 2015, but not to the high level it had turned out to be.

Olawale further said incurring debt for purposes of development was not in question, but that taking over 20 per cent of annual national budget to service it should be enough source of worry. He, therefore, urged government to manage the rising debt profile, both at the state and federal levels, as this trend portends a gloomy future for the nation.

Tajudeen Yusuf, a member of the House of Representatives who brought the issue of Nigeria’s debt profile up for discussion at plenary, noted that the House was concerned that aside from the rising national debt profile, there was a sharp increase in sub-national borrowing in the last three years, such that the domestic debts of state governments rose from N1.69 trillion in June 2015 to N3.4 trillion in June 2018.

He noted that though external or domestic borrowing was an important and necessary strategy to reflate the economy and stimulate national growth and development, “the positive impact of Nigeria’s borrowings since June 2015 has yet to be seen.”

Tajudeen added, “Unlike global practices where borrowings are tied to specific projects mutually agreed by respective organs of the government, various borrowings by the federal government since June 2015 have not been transparent, a situation which gives room for doubts, misconception and prone to manipulations.

“Nigeria’s revenues are sharply declining, which makes it increasingly difficult to attract and sustain higher debts. This ultimately portends micro and macro dangers to the national economy amidst numerous developmental challenges.”

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