THE MOUNTING DEBT PORTFOLIO

The rate of borrowing is excessive

There is nothing new in the declaration by the chairman of President Muhammadu Buhari’s Economic Advisory Council (EAC), Doyin Salami, that Nigeria’s current public debt stock is unsustainable. But the revelation that the debt service-to-revenue ratio stood at 97.7 per cent (January to May 2021) should worry all Nigerians. More disturbing is that Salami spoke in the same week the president wrote the National Assembly seeking approval to obtain $4 billion and 710 million Euros loan to fund the deficit in the 2021 budget.

Former President Olusegun Obasanjo spoke the minds of many Nigerians last weekend when he expressed concerns about the repayment of these questionable loans. “If you are borrowing and accumulating debts for the next generation and the next generation after them… what are you borrowing for?” Obasanjo asked. “If we are borrowing for recurrent expenditure, it is the height of folly. If we are borrowing for development that can pay for itself, that is understandable. And how long will it take to pay itself?”

While the question remains unanswered, experts within Nigeria and multilateral lenders have continued to advise against increased borrowing amid plummeting revenues. The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has repeatedly sounded notes of caution that the federal government should not hide under the mantra of some nebulous debt-to-GDP ratio to continue amassing loans. In its 2020 Macroeconomic Outlook, the Nigeria Economic Summit Group (NESG) had also stated that “Nigeria’s mounting debt profile is a major concern despite the country having about $900 billion worth of dead capital in properties and agricultural lands”, referencing the 2019 PwC Nigeria, report.

Agencies of the federal government have also been speaking out. Just last week, the Debt Management Office (DMO) disclosed that Nigeria’s total public debt, comprising states and federal government debt obligations, grew by 7.75 per cent, from N32.916 trillion in December 2020 to N35.465 trillion as of June this year. And going by Salami’s projection, the country’s debt stock is estimated to hit about N54 trillion when “Ways and Means” as well as the Asset Management Corporation of Nigeria (AMCON) liabilities and the 2021 fiscal deficit are put into consideration.

While we understand the funding challenge that has now been compounded by COVID-19 and the fluctuating oil prices, the federal government must understand that we cannot borrow our way into prosperity. The counsel by the MPC of CBN and other stakeholders is that we need to build fiscal buffers against the growing impact of the country’s high debt profile. Sadly, there are bigger challenges in many of the 36 states. The current governors on assumption of office complained of inheriting heavily indebted states on account of funds taken from the capital market by their predecessors. Many of these governors have also gone to secure their own loans which they also expect future governments in their states to repay. Aside the fact that majority of the states can hardly meet their routine obligations after servicing their monthly debts, most of the loans were not deployed to tangible projects.

From China’s Eximbank to the World Bank, African Development Bank, Islamic Development Bank, German Development Bank and others, the federal government seems to be scavenging for loans from just about anywhere without any thought about how they would be repaid. While borrowing may be inevitable, especially at a period like this, there are serious concerns at the rate these debts are being piled up. Besides the fact that the funds are not being deployed into projects that generate income, borrowing should be done with circumspection: not done to mortgage the future of the country and its sovereignty.