In the last decade, Nigeria has continued to spend a substantial part of its earnings in servicing its ever increasing debts piled up by the inability to meet production targets amongst others. With debt servicing gulping N3.61 trillion, the citizens are worried that the economy may be shutting down; BENJAMIN UMUTEME writes.
When the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, disclosed at the public presentation of the draft 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) that Nigeria plans to spend N3.61 trillion or 21 per cent of total expenditure, and 34 per cent of total revenues to service debt in 2023, it became obvious to many that the country was in deep trouble.
A look at the projected revenue for 2023 showed that the federal government would rake in N6.340 trillion in revenues. However, with a budget deficit of N6.26 trillion, experts say the nation would be thrown into more debt.
Interestingly, a look at actual spending for the first quarter of 2022 revealed the fears being expressed by many. According to data from the Budget Office of the Federation, N1.92 trillion was spent on debt service as against revenue of N1.6 trillion.
Debt-driving debits
A closer look at the public debt trend from 2015-2021 revealed that Nigeria’s public debt increased rapidly. A breakdown showed that in 2015, Nigeria’s public debt stood at N12.603.705; in 2016, it moved to 17.306.010. Then in 2017 and 2018, it rose to N21.725.773 and N24.387.072 respectively. Between 2019 and 2021, public debt rose from N27.401.381 to N32.915.515 and N35.465.005, respectively.
Many have blamed the accelerating debt on persistent low crude oil production output occasioned by oil theft and oil pipeline vandalisation on the one hand and insecurity on the other.
Increasing debts
The data gathered from the Debt Management Office (DMO) revealed that a whopping N15.22 trillion was spent by Nigeria to service domestic and external debts in 10 years.
An analysis of the DMO numbers showed that domestic debt service contributed 88.7per cent or N13.5trillion, while external debt interest/service contributed 11.35 per cent or N1.73 trillion ($5.3 billion) out of the N15.1trillion total debt services from 2012-2021.
According to the DMO, interests on NTBs and FGN Bonds amounted to N3.4trillion and N9.27trillion respectively in the time under review.
For The external debt interest/service on Multilateral and Eurobond, the federal government borrowed funds from foreign financial institutions amounted to $940.86million and $3.42billion in the years under consideration.
The multilateral financial institutions FG pays interest/service on loans borrowed are: International Bank for Reconstruction and Development, Africa Dev. Bank, International Fund for Agric. Dev., Africa Dev. Fund, European Dev. Fund, Arab Bank for Economic Development in Africa (BADEA), among others.
A further look at the data showed that the federal government domestic debt stock by Instrument moved to N19.24 trillion as at December 31st, 2021 from N6.54 trillion in 2012, while Nigeria’s External Debt Stock closed 2021 at $38.391million from $6.527million in 2012.
In addition, Nigeria’s total public debt portfolio as at December 31, 2021 stood at $95.779 million (external) and N39.556billion (domestic) from $48,496.23 (foreign) and N7, 554,258.00 (domestic) as of December 31, 2012.
However, the breakdown of domestic debts service showed a movement from N720.55 billion in 2012 to N2.05trillion in 2021, while external debt service closed 2021 at $1.10 billion or N455.99 billion from $131.48million or N20.35billion reported by DMO in 2012.
It is also worth noting that N2.05trillion and $1.10billion spent on servicing domestic debts and external debts in 2021 were the highest on DMO record.
DMO forecast that the federal government is likely to spend a cumulative amount of $10.19billion servicing the nation’s external debt obligation between 2021 and 2030.
Sounding the alarm bells
Speaking at the public presentation of the MTEF/FSP for 2023-2025, Minister of State for Budget and National Planning, Prince Clem Agba, warned that with way things were going, the federal government would not be able to carry out any capital project and payment of salaries would be a big burden.
He added that with the additional burden of fuel subsidy which is expected to gulp about N6 trillion, the government would practically not be able to carry out its obligations.
“I think that the time to remove the subsidy was yesterday. We are only eating away our future and that is what some people call a consumption economy.
Finally, it is difficult to understand a situation where citizens say that they want omelets and then when the government wants to break eggs so that they can produce they say don’t break them. So, it’s a decision that Nigerians will have to take because if you look at scenario one, it means that we will not have any capital expenditure in 2023.
“There’ll be no capital expenditure at all, and taking care of recurrent expenditure will be a huge challenge with a scenario 2 where we’ll say let’s take it out to June. It means we only have about one trillion left for capital expenditure,” he said.
The International Monetary Fund (IMF) predicted that Nigeria’s debt service-to-revenue ratio would jump to 92 per cent in 2022 from 76 per cent in 2021.
Experts’ takes
Experts are of the view with the revenue on a continuous downward movement, it would be difficult for the country to escape being sucked into the debt pit.
A former president of the Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola, said, “If you look at the fiscal budget in the past two years, funding of the budget has been about 30-40 per cent and that alone has put pressure on the financing profile of Nigeria.
“Of course, our major source of revenue is oil, which is currently unstable because of the global and domestic issues attached to Oil prices.
“These challenges have reduced Nigeria’s capacity to generate revenue initially. However, governance must continue and there is a need to borrow both local and foreign. Mind you, when you borrow, you will have to service them, which has contributed substantially to our debt service burden and it is expected to impair other aspects of government financing of government, especially the capital expenditure.”
For the CEO, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, the country’s weak revenue base is largely responsible for the crisis presently.
He said, “When we take account of the borrowings from the CBN and the stock of the AMCON debts, the debt profile would be in excess of N60 trillion. Although the government tends to argue that the conditions were not a debt problem, but a revenue challenge. But debt becomes a problem if the revenue base is not strong enough to service the debt sustainably. It invariably becomes a debt problem and possibly a debt crisis. The government actual revenue can hardly cover the debt service obligations.
“This implies that the entire capital budget and the recurrent expenditure may have to be funded from borrowing. This is surely not sustainable. The finance minister reported recently that in the first four months of this year, debt service to revenue ratio was over 100 per cent. What is needed is the political will to cut expenditure and undertake reforms that could scale down the size of the government reduce governance cost and ease the fiscal burden on the government.”
Also speaking, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka, said, “The negative aspect of debt-servicing in Nigeria is the sustainability problem that has now greeted the current administration of President Muhammadu Buhari, whereby, more than 100 per cent of revenue is now being expended on debt servicing, giving room for possible default and failure of government in no distant future, especially with respect to foreign debt component.”
Also, the president the Lagos Chamber of Commerce and Industry (LCCI), Dr. Michael Olawale-Cole, warned that the country’s borrowings were significantly increasing, and that the nation was struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden.
These developments, the LCCI boss said, were disturbing seeing that debt- servicing alone was higher than actual retained revenue in the first four months of this year.
“There are already concerns that most, if not all, of the assumptions in the Medium-Term Expenditure Framework (MTEF) 2023-2025 will be missed as we continue to experience unprecedented levels of disruptions to supply chains and agricultural production.
“The 2022 budget assumptions have already fallen short in terms of inflation, exchange rate, and GDP growth rate and all of these assumptions have become inadequate. Nigeria’s debt-to-GDP ratio now stands at 23.27 per cent, as against 22.43 per cent on Dec. 31, 2021,” he said.
