The Danger of Growing Debts…1

The country’s debts are excessive and unsustainable

Already battered by high levels of socio-economic stress, Nigeria’s ever rising debt portfolio is causing increasing anxiety. Unfortunately, authorities in Abuja and the 36 states have continued to sneer at genuine concerns as the loans keep piling up, raising the spectre of another debt trap in future. Former President Olusegun Obasanjo recently spoke the minds of many Nigerians when he posed some questions at a public forum on the mounting debts. “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. Then the payment, 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 borrowings amid plummeting revenues. Nobody seems to be paying much attention. Last Saturday, the Senate approved the letter by President Bola Tinubu for securitisation of the balance of ‘Ways and Means’ in the Consolidated Revenue Fund (CRF) of the federal government. That was after jerking up the budget by N1.2 trillion from the initial proposal of N27.5trillion to N28.7 trillion based on unrealistic projections by the lawmakers. And no matter the gloss being put on the situation by the current administration, the debts have become huge liabilities, unsustainable and inimical to economic growth and development.

In its 2020 Macroeconomic Outlook, the Nigeria Economic Summit Group (NESG) had 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. The situation has since worsened. Our debts are not only increasing, but so are the amounts we need to put aside every year to service them. In the 2024 budget for instance, the sum of N8.5 trillion has been allocated to debt service. Against the background that debt service is hard expenditure that would be undertaken 100%, regardless of whether all the revenue comes in or not, that is a huge fiscal hole to fill.

We understand that borrowing may be inevitable, especially at a period like this. But there are serious concerns at the rate these debts are being accumulated. Aside from the fact that the funds are not being deployed into projects that generate income, borrowing should not be done in such a way to mortgage the future of the country and its sovereignty. Last June, the Debt Management Office (DMO) warned the federal government against additional borrowing, saying 73.5 per cent of revenue generated in the year 2023 would be used to service debt.

The warning came as part of recommendations to the federal government, following analysis of the nation’s debt profile in 2022. “Although the baseline analysis projects total public debt-to-GDP ratio at 37.1 per cent for 2023, indicating a borrowing space of 2.9 per cent (equivalent of about N14.66 trillion) when compared to the self-imposed limit of 40 per cent, it is recommended that this should not be used as a basis for higher level of borrowing as was the case in the 2023 budget,” the DMO stated in the report. “This is because the outcome of the shock scenario, which is more realistic in the circumstances, exceeded the self-imposed limit. The projected FGN debt service-to-revenue ratio at 73.5 per cent for 2023 is high and a threat to debt sustainability. It means that the revenue profile cannot support higher levels of borrowing.”