…Adeosun: 20% Debt to GDP Not Toxic to  Our Economy

The Minister of Finance, Kemi Adeosun, has said that at 20 per cent Debt to Gross Domestic Product (GDP), Nigeria’s foreign debt level does not pose any risk to its financial stability and economy.

While admitting that the concerns raised by the International Monetary Fund (IMF) on the attendant risk of rising foreign debts to emerging economies was legitimate, she argued that Nigeria was not among the countries referred to by Bretton Woods institution.  

 Adeosun, who fielded questions from journalists after the G-24 Finance Ministers and Central Bank Governors’ Meeting, yesterday at the ongoing IMF-World Bank spring meetings in Washington DC, United States, pointed out that the advice was actually directed at low income countries whose debts had risen to levels as high as 55 per cent of GDP. She clarified that Nigeria is a middle income country. 

 According to her, “The concern which has been expressed, which is a correct one, is about debt levels in low income countries, LIC as we call it. Nigeria is actually a middle income country. The concern that has been expressed is a legitimate one; those debt levels are at 55 per cent of GDP which is very high. Nigeria is at less than 20 per cent, so we are not actually one of the countries they are expressing concerns about. However, we will continue to manage our debts very responsibly. We are at 20 per cent; we don’t intend to grow it aggressively. The rate of debt accumulation is slowing down as we are replacing debts with revenue and refinancing our debts. 

“So it’s a good advice for all, but we are not a low income country by the classification. We are actually a middle income country. We are not one of those they are expressing concerns about but we are listening. We don’t need to become one of the categories of what they are expressing concerns about, the countries that they are concerned about has ratio of 55 per cent.”

The finance minister was reacting to the warning by the IMF through its Financial Counselor and Director of the Monetary and Capital Markets Department, Tobias Adrian, last Wednesday that rising foreign debts remained a big risk to financial stability. “The debts that are accumulated quickly are deteriorating and could pose financial stability crisis in the future in emerging markets,” he said.

However, when Adeosun was asked if “listening” means Nigeria will not take loans anymore, she said: “No. That we are listening means it is good advice for all. You listen to good advice, manage and sustain it, which is what we are doing. Increase our revenue, which is what we are doing and get our economy growing. Improve the tax base so that we can continue to invest in infrastructure because that’s what will lead to industrialization and that is what will lead to job growth.”

Addressing the issue of human capital development, Adeosun said: “It is a huge priority for a country with a huge population like ours. What we need to do is to be more focused, so that we really understand how much we are investing. It is not really about the amount you are investing; it is about the outcomes. If we continue to measure education by how much we spend, we will always get the wrong result. It is not how much we spend in school; it is what do they come out learning? 

Responding to a question on the N2 trillion debt service payments, Adeosun said: “It is expected if you look at the framework that sat behind the Economic Growth and Recovery Plan, ERGP. I don’t like to look back but if you look at the situation we inherited in 2015, there was a collapse in our major source of income, growth had curved, reserves were not there and debts were rising. 

“There were two options: One was to cut back, lay people off and wait for oil prices to recover or be more aggressive, expand your budget, take on more debts and invest in infrastructure in hope that you will get growth going to develop more revenue. Now, step one and two and three of that have been done. We’ve expanded our budget; we pumped money into the economy. We made sure recession was not prolonged. We are now back into growth. We need to accelerate that growth and focus on revenue mobilization, which in turn will reduce our debt pressure. That was the strategy we outlined and that was what we executed so I don’t agree that N2.3 trillion is a large part; it’s relative to what? If we were still in recession, we’d have far bigger problems. 

“I think what people haven’t realised is how much work had to be done to make sure that that recession was as short as possible because that would have caused real pain for the people. Some of the ministers that I was in meeting with, they are still in recession; they haven’t been able to get out of it yet. That means real pain for a long time. We shortened it, we had to borrow to do so and we make no apologies for that. That was the right thing to do. We invested N1.3 trillion in infrastructure, in capital projects that will support industralisation growth and we are starting to see the investments coming back in. Investors are saying we are opening up here and this is good news for Nigeria. So, I think we are on the right path.”

Adeosun argued that there was no need for World Bank to help monitor Nigeria’s debts since the country had an institution already doing that. “I don’t think it’s necessary to have the World Bank monitor our debts and I’ll tell you why. We have the Debt Management Office, works on best practices basis; puts out data regularly on our debt levels. We have the economic management team monitoring our capital projects; we have set up monitoring in ministry of budget and national planning which is separate from finance.

“Who do monitoring and evaluation and then we have all of you to go out there on behalf of Nigeria. They don’t know Nigeria as much as you do to say where are these capital projects? When we were doing the Sukuk, you monitored it and in one case where the contractor was not there, it was the press that said there was no contractor on this road and we were able to follow up. I think every Nigerian has become a monitoring agent of the government as far as capital projects are concerned and that’s very good.

“That’s what should happen in a democracy because it’s everybody’s money and its everybody’s country. We don’t need the World Bank, if they want to come and help us, great, but we don’t need them. We have 195 million eyes watching the government and that’s exactly what they should do.”