By Phillip Isakpa & Moses Obajemu
- Debt may double on back of forex risk
- Revenue sources thin out
As the federal government’s borrowing in the last three and a half years has progressively doubled Nigeria’s stock of public debt (both domestic and external), there are palpable fears in fiscal and monetary policy analysts’ circle that the country could soon really become broke and be unable to meet its obligations. Fears have also been expressed that the nation may become stuck in a debt quagmire in the event of a major currency crisis or face foreign exchange risks that could double the current debt profile.
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Nigeria’s debt profile, according to the Debt Management Office (DMO), stood at $73 billion (N22 trillion) at the end of June 2018 compared to $63 billion in June 2015. According to debt statistics obtained from the DMO, the country’s external debt rose from $10.32 billion in June 30, 2015 to $22.08 billion as of June 30, 2018.
This means that the country’s external debt commitment has grown by 114.05 percent in the last three and a half years.
Although multilateral debt made up $10.88 billion or 49.28 percent of the country’s external debt profile, most of the increases in the last three years occurred in the area of commercial loans.
According to the DMO, commercial foreign loans, which stood at $1.5 billion as of June 30, 2015, had risen to $8.8 billion as of June 30 2018.
This means that in the last three years, the country’s exposure to commercial foreign loans has risen by $7.3 billion or 486.67 per cent.
Oil revenue appears to be the only certain source of revenue that is constant. But despite government promises to beef up non-oil revenues, they have remained elusive.
Even as revenue has declined, government spending has skyrocketed, growing by 56 percent since 2012 and as much as 26 percent between 2016 and 2017 alone, one analyst told business a.m., adding that it was a worrying position to be right now for the country.
The country’s spending has not been particularly efficient either, noted another analyst who would rather not be named, but said he was speaking to draw the attention of policy makers to the danger that lies ahead, if nothing was done quickly now that elections are over.
“Nigeria spends more on salaries and servicing debt than on capital projects – even in 2017 when capital expenditure was at a record high,” he said, suggesting unproductive expenditure concentration.
“Personnel costs haven’t changed much in recent years,” said a policy analyst, adding that this was despite government promises. “They even consume a greater share of what the government earns. In 2013, half of what the government earned was committed to salaries; by 2017, that number was 70 percent,” he said, describing it as most inefficient and unproductive use of falling earnings of government. “And of course, as global crude oil prices rise, Nigeria spends more and more on wasteful fuel subsidies,” he pointed to a much vexed issue that has been widely condemned by very many in business and policy corridors, except those who tap political capital and other benefits from the system.
Analysing the scenario further, he said: “It is important to note here that the Nigerian government doesn’t spend that much compared to its peers. Federal government spending was just 5.6 percent of GDP in 2017, compared to 13.4 percent and 20.9 percent in Angola and South Africa respectively, according to the World Bank. The issue is that the government doesn’t earn much money, meaning that even the little spending that is done seems reckless.”
Indeed, financial experts at the International Monetary Fund and the World Bank have advised that the revenue-to-debt ratio is unsustainable and it portends a serious danger for future generations of Nigerians.
The disturbing public debt situation has drawn concern from various groups and bodies in the country who see the trend as a danger to the nation’s sovereignty.
Timothy Olawale, director general of the Nigeria Employers’ Consultative Assembly (NECA) described the trend as very disturbing, which could have a negative effect on the developmental capacity of Nigeria.
Tajudeen Yusuf, a member of the House of Representatives who brought the issue 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, ultimately portend micro and macro dangers to the national economy amidst numerous developmental challenges,” he noted.
Nigeria has in recent times used the eurobond market for its external funding, rather than concessional lenders. It sold $5.4 billion of bonds last year and $4.8 billion in 2017, making it Africa’s most prolific issuer in that period after Egypt. Bank of America said in a research note this month that Nigeria would probably print another $3 billion of securities in the second half of 2019.
Patience Oniha, director general of the DMO, while speaking on the high cost of servicing the public debt, said: “If you were to ask me if we’re going to issue Eurobonds this year, I’d say we’ll explore all the options.
“Our preferred option is to explore concessional sources. One of our major objectives is to reduce debt-service costs,” she said.
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.