PAUL OGBUOKIRI 
Managing national debt
According to the World Bank, Nigeria spent 96.3 per cent of its 2022 revenue on debt servicing. This came as the Debt Management Office said that Nigeria’s total debt stock rose to N44.6 trillion in December 2022. According to the World Bank report, Nigeria’s fiscal position deteriorated in 2022, leaving the nation’s cost of petrol subsidy to increase from 0.7 percent to 2.3 per cent of the country’s gross domestic product. “This has continued the public debt stock at over 38 percent of GDP and pushed the debt service to revenue ratio from 83.2 percent in 2021 to 96.3 per cent in 2022,” it read.
Financial experts had faulted the government’s position on borrowing amid the rising debt profile. That was even as Dataphyte’s review of Nigeria’s 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) has revealed that the Federal Government will spend N6.31 trillion on debt servicing in 2023. The proposed amount is 74.6 percent of the government’s projected revenue of 8.46 trillion for the year. This implies that for every N100 the government hopes to generate in 2023, at least N74 will be used to service debts.
It is no longer news that Nigeria cannot afford to fund its budget without recourse to borrowing. While borrowing is not peculiar to Nigeria alone and may not be entirely bad, the country’s increasing debt profile and high debt servicing have become a major concern to the citizens, especially when the debt service to revenue ratio is put into perspective. Meanwhile, in the MTEF document, the projected revenue for 2023 is pegged at N8.6 trillion, suggesting a 15.13 percent decrease from the N9.97 trillion projected for 2022.
Aside the expected revenue decline this year based on the government’s projection, the amount for debt service alone is 74.6 percent of the projected revenue for 2023. There are fears that this might even be higher, given that the government has never met its revenue projections in the past in the period under review. Economic experts have raised concerns about this situation, and the International Monetary Fund (IMF) has warned that if no adequate measures were taken by the Nigerian government, particularly on improving revenue generation, debt service might gulp the country’s entire revenue by 2026.
Worsening fiscal position
Nigeria’s inability to optimise the global oil price rally has worsened its fiscal position as the government faces revenue generation challenges amid an increasing debt burden, according to the World Bank. The bank added that the country’s reliance on oil has also caused it to be highly vulnerable to global and domestic shocks, which heightened its risk of a recession. According to the banks’ Nigeria Development Update (NDU) for December 2022, and Economic Memorandum, between 2020 and 2021, when oil prices were much lower, the government missed an opportunity to address one of the primary sources of fiscal vulnerability by choosing to maintain the subsidy for petrol.
Consequently, the country now faces a fiscal time bomb amid its low oil production. “Instead of benefiting from the windfalls to build macroeconomic resilience, the Nigerian economy is becoming more vulnerable to external shocks and if the external wind- falls were to reverse, the economy could face a similar recession to that of 2015–2016,” it stated. The Brettonwood institution further disclosed that because Nigeria was unable to benefit from the oil price boom, the government has resorted increasingly to costly CBN financing, which in turn has increased interest costs, causing severe fiscal and debt challenges.
Hence, without adequate buffers, the economy is more vulnerable to external shocks more severe than the pre-pandemic period. According to the NDU, with such intense fiscal pressure, debt servicing is expected to surge, exerting fiscal and liquidity pressures and is projected to reach about 45 percent of GDP in 2027. “As debt is increasing rapidly, the proportion of short-term (expensive) debt is high, and poor market perceptions coupled with higher global financing costs may limit Nigeria’s access to international financing,” the report said.
Pressured finances at the federal level will further weaken the fiscal condition of sub nationals even till 2023 as statutory transfers to states are expected to decline by 5.5 per cent as expenditure and capital expenditure are expected to increase by almost 4 percent and 17.3 percent respectively in nominal terms. The global body said Nigeria’s macroeconomic stability has deteriorated significantly and revised downward the country’s growth estimates to 3.1 per cent in 2022 and 2.9 per cent in 2023–2024 as against the 3.4 per cent and 3.2 percent earlier projected for 2022 and 2023–24 respectively.
“A weak infrastructure base, high levels of insecurity, governance issues, bottlenecks to private investment and competitiveness, poor human development outcomes, and uncertainty about the pace and direction of economic policy, are key factors hampering the long-term growth of Nigeria’s economy,” it stated. It, however, noted that in 2023 to 2024, the economy will continue growing at a moderate pace, driven by services particularly in the telecommunications, trade, transport, and financial services sector, manufacturing and construction sector, and a partial recovery in the oil sector.
On the back of accelerated inflation, the report noted that the double-digit increase in prices of food and essential commodities, especially when incomes have been declining, has pushed millions of Nigerians into poverty and reduced the welfare of many more. For the third consecutive month in March, Nigeria’s inflation surged since the year began, hitting 22.04 per cent up from 21.91 per cent in the previous month. According to the National Bureau of Statistics (NBS), “the March 2023 inflation rate showed an increase of 0.13 percent points when compared to February 2023 headline inflation rate” which has eroded the N30,000 minimum wage by 58 per cent and widened the poverty net with an estimated five million people in 2022.
The World Bank warned that if Nigeria continues its ‘business as usual’ narrative, its GDP growth rate will continue to lag other emerging economies, inflation will be higher, and fiscal deficits larger, hence some critical reforms needed to be implemented. “If no structural reforms are implemented and business as usual continues, people’s prospects will be hindered. Per-capita income will plateau, 80 million working- age Nigerians will not have a full-time job by 2030 if the employment rate does not improve, and 23 million more Nigerians will live in extreme poverty by 2030,” it stated.
According to the report, Nigeria needs to grow faster and create more jobs, which is a necessary condition for accelerating poverty reduction and economic transformation which necessitates the need for a business enabling environment and increased investment inflow.
Seeking debt relief
Although, the Federal Government had at different times stated that it will not demand debt forgiveness, recent disclosures by the Minister of Finance, Budget and National Planning, Zainab Ahmed, to the effect that the Federal Government is exploring debt restructuring options as well as securitising the N22 trillion Central Bank of Nigeria (CBN)’s overdraft, may confirm what analysts have always feared, that the economy is finally facing fiscal challenges. During a media interview at the recent World Bank and International Monetary Fund (IMF) Annual Meeting in Washington DC, Ahmed said that the Federal Government had commenced discussions with the Brettonwood institutions on debt restructuring for the country.
“Unfortunately, the cost of debt service is rising because of the growing interest rate globally, which is resulting also in higher debt service costs. But our projection from the debt sustainability analysis is that Nigeria is able to cope with its debt service in 2022 as well as in 2023. “We have been engaging financial institutions to look at the opportunity to restructure our debt to further stretch the debt service period to give us more fiscal relief. Those are some of the things we want to achieve in this meeting,” Ahmed said. The official disclosure came the same day Managing Director of Augusto & Co, Olabode Augusto, raised the alarm that Nigeria was on “its road to Zimbabwe,” stressing that no other country is leveraging 10x spending as the country is currently doing.
Leverage ratio is the level of debt in proportion to income or equity. While Ahmed was in Washington negotiating with development partners, renowned economist and Director of the Centre for the Study of African Economies, University of Oxford, Prof. Stefan Dercon, was in Nigeria to speak on the state of the economy and the options before the managers. Dercon dismissed Nigeria as a country trapped in an ‘elite bargain’ crisis. He said hard choices would be able to rescue the economy but warned that even choices are limited in these hard times.
He said any decision taken to achieve macroeconomic stability would be painful. The best time to act was about seven years ago, he said, advising the country to continue to manage the situation but show commitment to making hard decisions when things are more stable. Reacting to the Minister’s disclosure, a professor of economics and debt management expert, Godwin Owoh, described the plan as another fruitless and costly ploy that would further drain the public purse. He challenged the government to provide more information about the consultants it is working with to help Nigeria evaluate the process. Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, warned that the move would downgrade the country’s economy to ‘junk status’, which would mean that the country will no longer be creditworthy in the international market.
Emmanuel also argued that converting the ways and means (W&M) facility into local debt stock is not only a violation of the Central Bank of Nigeria (CBN) Act, but would also increase the total debt stock by over 50 per cent and worsen the cost of servicing; as well as trigger a downgrade to a lower rating from the current not-too-good B2. “Seeking to raise $20 billion is proof that the government does not understand the impending doom the economy faces in the current trajectory,” he said.
Recall that President Muhammadu Buhari had at the United Nations General Assembly in September 2022 sought the assistance of world leaders in considering granting debt relief or outright cancellation to developing countries. But the Deputy Managing Director of IMF, Kenji Okamura, has urged governments to be prudent and spend public resources for the greater need of the people. He said: “We live in turbulent times, which highlight the importance of social contracts – an understanding of mutual expectations that bind citizens and their governments.
To strengthen public trust and support social cohesion, governments need to invest in basic public services and deliver more inclusive policies. Fair and more transparent use of public resources is key.” Meanwhile, with Gross National Income (GNI) per capita of $5,200 in 2021, Nigeria does not qualify as one of the poorest countries of the world like South Sudan, Burundi, Congo DR etc. This is even as new data from the World Poverty Clock revealed that India has surpassed Nigeria as the nation with the highest number of extremely poor people in the world, though the country has over 70 million extremely poor people.
However, according to the World Bank in its 2022 Poverty and Prosperity Report, Nigeria contrib- uted three million people to global extreme poverty, while the country is “home to a large share of the global extreme poor.”
Ways out of debt conundrum
According to the Debt Management Office, Nigeria’s growing debt stock to budget deficits, continuous issuance of promissory notes and other borrowings as well as low revenue generation are contributory factors to the debt burden.
The Director General of DMO, Mrs. Patience Oniha, said: “What are the triggers and why is the debt stock growing? It is because when the debt stock is growing, the debt service also grows.
The debt stock is growing because Nigeria has been running budget deficits for many decades. “In good and bad times with oil prices, we have borrowed. We’ve been running budget deficits and those deficits are funded largely 85 to 95 per cent from borrowing and that is cumulative.
These are publicly available data. “As we borrow each year, it adds up. So, the annual budget deficits are a major component. If you look at this year’s budget, the budget size is N21 trillion, borrowing is N10 trillion.”
She added that Nigeria had secured several loans in the past from multilaterals like the World Bank, and the African Development Bank and bilaterals from Germany, India, and China and disbursements are going on.
On the way out of the debt quagmire, the Lagos Chamber of Commerce and Industry (LCCI), called on the government to re-strategise on revenue generation, such as a shift in focus to equity financing, among others, while the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, NACCIMA, said that there is the need for a higher level of fiscal discipline by government.
Director General, LCCI, Dr. Chinyere Almona, said the government should emphasise strategies on revenue growth, while blocking leakages, among other measures.
Almona said: “LCCI recommends that government must shift focus to equity financing, divestment or shedding of its equity holdings in state-owned enterprises, real estate, and infrastructure to reduce its debt commitments and improve its fiscal situation.”
Both capital and interest payments on borrowed sums expose the country’s fiscal vulnerabilities. “Also, the government should, as a matter of urgency, emphasise strategies on revenue growth while blocking leakages.
Importantly, the government may want to consider the need to deregulate the downstream subsector of the oil industry to block a major drain on revenue,”Almona said
