Tony Chukwunyem 
Given the tough challenges countries face in trying to exit a debt trap, it is imperative for Nigeria to start rethinking its debt management strategy, analysts at Financial Derivatives Company (FDC) have said.
The analysts, who stated this in a new report released by the firm over the weekend, noted that Nigeria’s accumulation of massive debt over the last two decades, which in their opinion, was, “often accumulated impulsively rather than supporting productive and sustainable investments,” has raised concerns that the country might be heading into a debt trap.
As the analysts put it, “Nigeria’s path to debt accumulation raises sustainability concerns. Since 2005, when Nigeria received debt forgiveness from the Paris Club, there has been a resurgence of unsustainable debt buildup.
From 7.3 per cent in 2006, public debt as a percentage of GDP doubled to 14.1 per cent in 2015 and further quadrupled to 52 per cent in 2024.
“Similarly, external debt as a percentage of exports also rose to 77.3 per cent from 10.6 per cent in 2015, while FGN debt servicing as a ratio of GDP rose to 134 per cent of FGN revenue in 2023 from 33 in 2015.
“The struggle for exiting a debt trap sometimes seems to be a dead end. This is because a debt trap is usually an unbearable stranglehold that is usually darker at the rainbow’s end.”
Although the analysts highlighted several measures that countries could adopt to exit a debt trap, including, “taking new external debt to help finance existing debt obligations and averting debt default (The IMF, a lender of last resort, could be a succor); restructuring existing debt to achieve increased headroom to enable the fiscal managers to either clear the obligations at the future date or delay the evil day; deleveraging through a sustainability-debt arrangement and/or debt-to-grant deal and adopting fiscal retrenchment measures,” they stressed that, “none of these approaches are 100% result-proof.”
Thus, according to the analysts, “it is expedient for Nigeria to start rethinking its debt management strategy. It must prioritize breaking free from the debt trap to secure economic stability and sovereignty.”
They cited a Henry Ford quote which states that, “a nation that continues yearly to spend more money than it earns forfeits its freedom. Such a nation, in time, will become a slave to its creditors.’’
The analysts also pointed out that while Nigeria’s public debt rose to N108 trillion (46% of GDP) in 2023 from N15.8 trillion (17.8% of GDP) in 2014, available data suggests that the country, “may not have translated its borrowing into national prosperity.”
“In the past 10 years, Nigeria’s per capita income has plunged 48 per cent to $1,688 from $3,223 in 2014. Economic growth remained tepid at an average growth rate of 2%, while the human capital development index is still staggering at the low end of the pole (0.548).
The extremely poor people rose to 68 million from 57 million in 2014,” the analysts added. Shedding light on how debt traps occur, they said: “More often than not, the path to a debt trap begins with countries making initial borrowing decisions to finance development projects or address economic challenges.
As countries continue to borrow to meet debt obligations or fund deficits, debt accumulation becomes a significant concern.
“This could be heightened by inappropriate debt governance and inefficient public spending. Debt trap could also be engineered by debt trap diplomacy, a situation where a neocolonialist offers unfettered access to loans to weak countries that may not have the capacity to pay back.
China, the World Bank, and the IMF have been accused of debt trap diplomacy at different times.” “The struggle for exiting a debt trap sometimes seems to be a dead end. This is because a debt trap is usually an unbearable stranglehold that is usually darker at the rainbow’s end,” the analysts stated.
