BEYOND NIGERIA’S DEBT OVERHANG: THE OTHER SIDE OF THE COIN (PART 1)

SOFT FINANCE

BINOCULARS

“If you change the way you look at things, the things you look at change”- Wayne Dyer

It is on the lip of almost everyone. Students. Analysts. Bankers. Diplomats. Politicians. Law makers. Pastors. Housewives. Just anyone. The issue of Nigeria’s growing debts has been a subject of intense debate in virtually all the strata of society. It has become a testy subject of discussion.

Recently, several Civil Society Organisations (CSOs)  mobilised their members and wrote to local and foreign institutions they considered critical to prevail on  President Muhammadu Buhari, not go ahead with his plan to draw down on the $800 million his administration had secured to distribute to the segments of the society considered vulnerable, about 10 million people. Not long ago, when the public got to know that the present administration had actually secured and spent an  over draft (Way and Means)  it got from the Central Bank of Nigeria totalling N27.3 trillion, it caused not a small stir. Nigerians are apprehensive. They want to know why it appears the government has developed an uncommon love affair with borrowing and sourcing loans from every available avenue.

These days, Patience Oniha, the Director General of the country’s Debt Management Office (DMO), has appeared on many TV shows and  has been interviewed by many reporters.  She has continued to offer explanations, laced with figures and graphs. Yet many are still apprehensive about Nigeria’s growing debt stock especially when the World Bank released a report  recently suggesting that very soon, Nigeria may spend more than 100% of its revenue to service its growing debts, meaning there would be nothing left to take care of basic things of life such as health, education, security and so on.

Just what about Nigeria’s debts?  Many.

At  the inaugural brainstorming session of the Board of Analysts of  THISDAY’s newly retooled Economic Insights Unit (TEIU) last week, Nigeria’s debt was also the subject of intense debate. As at December 2022, Nigeria’s total public debts (external and domestic) stood at $103 billion according to data published by DMO. See the charts for the component.   What this means is that given an estimated population of 200 million, every Nigerian – the rich, the poor, the new born, students, aged population on their way to meet their makers – has a debt of $515 hanging on his neck. This translates to about N380,000 debt per every Nigerian. This does not include the debt service figure, which came to about $12 (N9,141) per Nigerian.

Worse, the growing debt stock, which predated Buhari’s administration, has continued to  crowd out  critical sectors of the economy out of government radar in terms of funding.

MUST NIGERIA CONTINUE TO BORROW?

At the end of its perceptive brainstorming session on the country’s debt issue, the TEIU came to a  series of firm conclusions. One of them is that focusing on just the issue of debt is incomplete; there are two sides to the coins – both the expenditure and the revenue sides, and both most be considered together to gain a fairly accurate assessment of the situation. The conclusion was that Nigeria is, infact not highly leveraged compared to other countries. Its debt-to-GDP ratio as at last December was just 33% and Oniha predicts that once that Way and Means approval is factored in, it could rise to 40%, still the lowest among the countries considered (see chart).  That means borrowing is not the issue, but looking at other parameters that put everything in perspective.

On the revenue side, for instance, Nigeria has one of the highest debt service-to-revenue ratios around the world. The World Bank put it at over 86% in its latest report. A report recently released by KPMG also warned that Nigeria may use more than all the revenue it makes to service its debts.

In a recent TV interview, Oniha explained that borrowing is not the problem for Nigeria.

“Countries borrow, so Nigeria is not the only country that borrows. Various countries, including the advanced countries such Germany, the UK, and the US also borrow.  So it is not a bad thing to borrow”.

She further explained that: “Borrowing  is an accepted form to fund government activities. But we should not end it there; borrowing should not be the major source of funding government activities. There must be  a revenue angle to the equation. It is the other side of the coin. Focusing on the debt profile of government alone without looking at the revenue side does not give the complete picture.

This is how it goes: “When you generate sufficient revenue, it reduces the need to borrow and also reduces your debt service to revenue ratio”.

Truly so. The TEIU’s Board of Analysts also believe that Nigeria’s debt situation is not as hopeless as it is configured to be; what is necessary is to tweak the entire architecture of the country’s  public finance and the ship would head for the correct destination.

One issue that generated intense argument  at the meeting was the attempt  to brand a particular regime as the most leveraged. Indeed, one of the analysts argued against using the main infographics that accompanied this story, insisting that it  is misleading. Nigeria’s problem, according to him, is not peculiar to the present administration. He said it started in 1999 when democracy was restored in Nigeria. Besides, he insisted that the debt process is a continuum that starts with one administration and continues with the one following, so it is difficult to isolate one as an addicted borrower. Every single administration has always run budget deficits, which were usually financed through borrowing, either domestic or external.

In that same interview, Oniha also shared similar sentiments:

“The debt stock is growing because Nigeria has been running budget deficits for decades. In good and bad times with oil prices, we have run deficit, and those deficits have been funded largely from borrowing (85% to 90%), and that is cumulative. Those are publicly available data.”

PUTTING THE COUNTRY’S DEBT ISSUE IN PERSPECTIVE

A decision taken at the TEIU meeting was to dimension Nigeria’s debt issue looking at every possible angle and offering suggestions on how to get out of the rat race. So, in the next few weeks in this column, we shall be focusing on different aspects of the country’s debts. We shall be raising several questions and also coming up with intervention options. Questions that may engage our attention revolve around   such issues as: Should Nigeria continue to borrow to finance its expenditure? What are the loopholes in the revenue side of the equation? How can the government retool its  entire public finance architecture with the aim of ensuring that everything fits? And if we must borrow, how should we go  for a discriminatory approach to borrowing? How do we ensure that debts judiciously incurred are utilised intelligently for public good.

So stay tuned for Part Two of this series next week.

Shalom!