- We may not exit fresh debt trap in 50 years – Economists
- ‘Every Nigerian owes $515 if debt is shared per head’
BY BAMIDELE FAMOOFO, TIMOTHY AGBOR, FESTUS OKOROMADU, AND MAYOWA SAMUEL
Nigerians may need to prepare for harder times in the years ahead, as Federal Government’s current revenue can barely pay its debts, investigations by The Point have revealed.
The incoming administration, to be sworn in by May 29, 2023, would also need to hit the ground running in a challenging economic environment where money to fund infrastructural development, which will lead to growth and development, is virtually not available.
According to the Lagos Chamber of Commerce and Industry, the current portfolio of debt, which the Debt Management Office puts at over N46 trillion, as at December 31, 2022, is totally unsustainable.
LCCI noted that the country’s debt service-to-revenue ratio stood at 80.6 per cent in the third quarter of 2022, a figure far above the World Bank’s recommended 22.5 per cent for low-income countries like Nigeria.
While the DMO would argue that the nation’s debt to GDP ratio remains within its self-imposed 40 per cent limit, The Point gathered that “the reality on the ground is that Africa’s largest economy is not capable of paying what it owes from the revenue which it generates, hence the tendency to borrow more, not for the purpose of development but to service debt.”
A former Secretary General of the Organisation of African Trade Union Unity, Owei Lakemfa, warned that the current leaders of Nigeria had prepared the way into economic slavery for generations yet unborn at the rate at which they were borrowing.
Tunji Ogunyemi, an economist, paints a more scary picture of the nation’s debt situation, claiming that it would take Nigeria half a century to be able to exit the huge debts if the nation’s income doubles.
According to him, Nigeria’s debt is largely unsustainable.
He decried the fact that Nigeria’s government had been borrowing to pay salaries and had not really used the debts to do something substantial in terms of investments and building infrastructures.
Ogunyemi, in an interview with The Point, revealed that out of about N7 trillion, which was the total income of Nigeria last year, N6.3 trillion was used as fuel subsidy.
“If our income is not doubled, only God knows when we will be able to exit our debts because the creditors will not just charge interest but will charge compound interest”
Giving a history of how the nation’s debt rose to $103.1 billion (N46.25trillion), Ogunyemi said, “The Federal Government currently owes $37 billion external debts. Former President Goodluck Jonathan added up to $14.5billion to it but Buhari has increased it to $37.2billion.
“Today, we owe $103.1 billion, both to the States and the Federal. The Federal Government alone owes $37.3 billion while the State and the FCT owe $4.4billion. Let’s leave the data because it won’t pay the debt. What will pay the debt is revenue. Nigeria’s total income last year was just about N7 trillion, but on fuel subsidy alone, for last year, we paid N6.3 trillion. That is more than 80 per cent of our total revenue.
“Our debt is clearly unsustainable. Our debt is so unsustainable that if we double our income today in Nigeria, we would only be able to pay our debts in another 50 years from now. If we double it and devote only 50 per cent of our income to servicing debts, and the remaining 50 per cent to growth in Nigeria, we won’t be able to exit the debts in 50 years.”
“If our income is not doubled, only God knows when we will be able to exit our debts because the creditors will not just charge interest but will charge compound interest. I am just dazed at how we have fallen back into the debt trap we exited in 2006. Within 13 years, we have fallen back to the worst ditch that we were in 2006,” he lamented.
Ogunyemi further noted that if the total debt of Nigeria was divided per head in the country, each citizen, including a day-old baby, would owe $515, adding that if it were to be limited to the working class alone, each working-class citizen would owe over N1 million.
He said the debt would slow down the nation’s growth and negatively affect the economy, adding that the country might get out of the financial mess soon should the debt forgiveness of 2006 repeat itself.
Another economist, Ade Ali, said there was the possibility of the Nigerian Naira growing weaker if nothing was done to put the rising debt burden in check.
Meanwhile, the nation’s former Statistician General, Yemi Kale, holds a slightly different opinion about the size of the nation’s debt portfolio.
He said in a tweet, recently, that the nation’s debt was only perceived to be huge because the repayment plan was poor.
He faulted the government for its inability to generate substantial revenue to meet its expenditure plans and alleged that borrowing was not channeled to the proper use that would drive growth.
“Debt has two issues. What it is being used for and its ability to repay. If the ability is enhanced through revenue reforms so that ability is raised towards capacity then the conversation about our size of debt disappears. Nigerian debt is only perceived to be too much because the ability to pay is poor despite an arguably comfortable capacity to do so,” Kale tweeted.
Uche Uwaleke, a professor of capital market and lecturer at the Nasarawa State University, Keffi, said the burden of borrowing to pay subsidies on petrol consumption was a major reason the country would continue to languish in debt.
“Government must stem the pressure by removing fuel subsidies and reducing reliance on external debt. More importantly, it must widen its revenue base and explore innovative ways of infrastructure financing,” he said.
A lawyer and economic analyst, Silva Emeka, submitted that Nigeria must become a productive country if it must win the battle of debt.
“We are a consuming economy; there is no production anywhere in Nigeria. We import even toothpicks and matches, virtually everything used in Nigeria is imported, and so how can a country with this culture and mentality rise to pay her debts? Every dime in the country is channeled towards importation and we are not exporting,” he noted.
Emeka also argued that the reason for borrowing was more worrisome.
He queried the basis for borrowing, saying that every country borrows but for projects that will recoup the money but that this was not the case with Nigeria’s borrowing.
He said, “You would hear people with the alibi that every country borrows and every country owes. That’s correct but go and fact check, countries borrow, use the borrowed money to build infrastructure and in the end, the project will service if not pay for the debt. But can we say that about our country? The answer is no. Where is the infrastructure? Are there projects on the ground?”
“We always hear that they borrow to fund budget deficits to execute projects. The next step is that those in government will ferry the money back to Europe, Asia, and America in money laundering, stash them in their foreign accounts while the projects for which the money is borrowed will be abandoned,” the analyst alleged.
Expressing his disappointment about the country’s lack of productivity which has contributed to the current financial mess, Lakemfa was hopeful that the incoming government won’t toe the line of the Buhari government in that regard.
Lakemfa said, “It’s a very serious matter that you can’t have funds to cater for development projects. If you have to borrow money to pay the debt, then we’re going towards bankruptcy and the earlier the Buhari government leaves, the better for all of us because he’s incapable of running even the most basic of the economy. He cannot run anything.
“The President was sick before he became president and every year, they budget money for the Aso Rock clinic but they’ve not been able to produce one room that they can put him in. They prefer to carry the presidential fleet to go and park in London for him, pay demurrage and medical bills and come back.”
“It’s a basic thing that there can be no growth, let alone development in a country where for almost two months, people can’t sell basic things because there is no cash. Where you have to use naira to buy naira at an interest rate or fee, there can be no growth or development, it’s not possible,” he added.
Corroborating, Danladi Yangoji, another economist and social critic, faulted the President Muhammadu Buhari-led Federal Government for embarking on a borrowing spree without achieving the intended purpose for such borrowings.
He accused the outgoing government of financial recklessness and lack of accountability built on disregard for the rule of law.
He stated, “These borrowings are possible because the Buhari administration has no regard for the rule of law and that is why his executives, I mean government officials can do whatever they like. At the Federal Government level, in states and everywhere, there is recklessness. When government officials have no regard for the rule of law, they do whatever they like and it is seriously reflecting on the manner in which they are borrowing money here and there without accounting for the ones already borrowed.
“Who asks them what they did with the money or which projects they executed with money?”
THE WAY OUT
Kunle Oladapo, an Abuja-based economist and financial analyst, said the incoming government must come up with a clear-cut strategy that tackles the growing debt burden to prevent the country from becoming a failed state.
Proffering a solution to the problem, he said, “I hear people suggest an increase in VAT but I think that will only kill those currently paying VAT. The issue should be how we encourage the people to pay tax. I know of private companies in Abuja where personal income tax is deducted from staff but never remitted to the government.
“A situation where the government allows private individuals to collect revenues as a reward for political support shows our unseriousness as a people. Government must wake up and be serious with governance; it is a serious business, just as the people must hold the government accountable.”
Oladapo wants the government to be more prudent in managing the resources of the country and creating a conducive environment for businesses to grow so that more people can be employed while expanding internal revenue generation.
Speaking on how Nigeria could wriggle out of the debt challenge, Ogunyemi advised the Federal Government to ensure that internationally acclaimed egg heads are allowed to give necessary economic advice to the President and the economic team.
He said a moratorium could be a solution to the problem too, but advised that the incoming government should consult experts widely and also engage in a multi-party approach in order to be able to stabilise the nation’s finances and economy.
Yangoji advised that one of the ways out was for the incoming government to take a drastic decision to bring dead industries back to life and block leakages.
“In a breakdown by states, the bureau said Lagos recorded the highest domestic debt of N807.21 billion in the fourth quarter of 2022. Delta followed with N304.25 billion and Ogun, with N270.45 billion”
The Director-General, Nigeria Employers’ Consultative Association, Adewale Oyerinde, stressed that the fundamentals to halt the slide to financial precipice in Nigeria “are stable and highly predictable revenue streams, growth-focused monetary and fiscal policies, a secure and business-friendly environment and a legal, regulatory and legislative system that promotes equity, justice and enables enterprise competitiveness.”
With rising debt, Nigeria is on the razor’s edge
Nigeria’s total public debt stock, consisting of domestic and external debt stocks of the federal, 36 state governments and the Federal Capital Territory, hit N46.25 trillion or $103.11 billion in the fourth quarter of 2022.
The National Bureau of Statistics disclosed this on Friday in its ‘Nigerian Domestic and Foreign Debt Report for Q4 2022’, released in Abuja.
The report showed that Nigeria’s public debt stock grew by 4.96 per cent in Q4 of 2022.
It said external debt stood at N18.70 trillion ($41.69 billion) in Q4 2022, while domestic debt was N27.55 trillion ($61.41 billion).
The NBS, however, said the share of external debt to total public debt stood at 40.44 per cent in Q4 2022, while domestic debt was put at 59.56 per cent.
In addition, the report showed that the Federal Government’s share of domestic debt was 80.62 per cent in Q4 2022.
In a breakdown by states, the bureau said Lagos recorded the highest domestic debt of N807.21 billion in the fourth quarter of 2022. Delta followed with N304.25 billion and Ogun, with N270.45 billion.
The report showed that Jigawa recorded the lowest debt at N43.95 billion, followed by Kebbi and Katsina at N61.31 billion and N62.37 billion, respectively.
Nigeria’s total public debt as of December 31, 2021, was N39.556 trillion or $95.779 billion.
The comparable figure for December 31, 2020, was N32.915 trillion or $86.392 billion.
