Modest debt, outlandish servicing cost

The cost of servicing Nigeria’s modest debt is spiraling out of control. Everyone except the federal government considers the consequent catastrophic financial asphyxiation as an existential threat.

Nigeria’s national debt now stands at N87 trillion, up from N48 trillion a few months ago. The size of the debt on its own is not an issue.

Nigeria has one of the world’s lowest debts to gross domestic product (GDP) ratio.

Even at the current rate of N87 trillion ($113 billion at the official exchange rate of N770 to the dollar), Nigeria’s debt to GDP ratio is a comfortable 38 per cent. That is several rungs below the World Bank’s debt threshold of 64 per cent for emerging markets.

The problem is the percentage of the nation’s revenue required for debt servicing.

The United States of America (USA), the world’s largest economy carries a debt burden of $31 trillion which is 137 per cent of its $22.6 trillion GDP.

That keeps Nigeria several rungs below the debt danger zone which the world’s largest economy is groaning under. The difference is that it is easier for the US to service a debt amounting to 137 per cent of GDP. Conversely, Nigeria is choking under a debt constituting a scant 38 per cent of its GDP. That is because Nigeria’s revenue is atrociously low.

The US serviced its crushing debt burden with $1.2 trillion in 2022. That is a scant 25 per cent of America’s annual revenue of $4.6 trillion.

Ironically, on one frenzied month in 2022, Mrs. Zainab Ahmed, Nigeria’s immediate past minister of finance confessed that Nigeria serviced its debt with 119 per cent of its miserable revenue. At the best of times Nigeria services its modest debt with 93.6 per cent of revenue.

It therefore follows that Nigeria spends just 5.4 per cent of revenue on its services. In other words, the federal government is so broke that it cannot even muster enough revenue to service its modest debt.

Nigeria’s problem is that of abysmally low revenue rather than catastrophic debt burden. Nigeria is a very bad tax collector that contradicts its miserable income with an indecently opulent lifestyle.

Until the emergence of Mohammed Nami as chairman of the Federal Inland Revenue Service (FIRS), Nigeria’s tax to GDP ratio of 6.5 per cent was one of the lowest in the world. Nami managed to push it to 10 per cent.

President Bola Ahmed Tinubu appears to have addressed Nigeria’s corrupt and incompetent tax collection melancholy with the appointment of Zacchaeus Adeyemi as chairman of FIRS.

If Adeyemi delivers on his promise to raise Nigeria’s tax to GDP ratio to 18 per cent in three years time, Nigeria’s debt crisis would simply evaporate. There will be enough money to service the debts and still fund capital and recurrent projects.

With Nigeria’s GDP currently at $501 billion, Adeyemi’s promise amounts to raking $90.1 billion into the federal government’s coffers in a year.

At the current official exchange rate of N770 to the dollar, that is a princely sum of N69.3 trillion which is thrice the 2023 budget funded through massive debts.

However, even if Adeyemi rakes in such sums, the federal government must tackle two key factors that engender the catastrophic revenue crunch and the consequent financial asphyxiation.

There are several lose ends that allow Nigeria’s revenue to be siphoned into private pockets.

The Nigerian National Petroleum Company Limited (NNPCL) is a bottomless pit into which Nigeria’s miserable revenue is drained.

With oil price standing menacingly at $95 per barrel and the naira toiling at a miserable official exchange rate of N770 to the dollar, there are fears that the landing cost of imported petrol has sailed perilously close to N600 per litre.

That explains why retailers demanded the hiking of petrol pump price to N720 per litre. The federal government resisted the pump price hike in a move that fueled speculations that petrol subsidy has been sneaked into the system through the back door.

Those speculations were further fueled by the fact that NNPCL instantly reviewed upward what it touted as daily petrol consumption figure.

At first it was announced that with subsidy withdrawal, petrol consumption had dropped to 46 million litres per day. The figure was promptly hiked to 55 million litres as high crude oil price and depreciating naira foisted higher landing cost of petrol on Nigeria and prompted the sneaky return of petrol subsidy.

NNPCL is the primary beneficiary of the sneaky return of petrol subsidy. The consumption figures would rise again as the company loots the treasury.

With petrol subsidy now yielding only a tiny fraction of what it was before, Nigeria’s distressed refineries would become major sources of looted funds. Government has spent well over N3 trillion repairing the failed refineries in three years.

Yet none of them has refined a barrel of crude oil in the last three years. Government is bent on getting the two refineries in Port Harcourt back on stream by the end of 2023.

That sounds like good news. But with NNPCL still at the helm of affairs in the refineries, no one expects them to justify the huge sums sunk into their repairs. Everything would be done to bring back the engineers repairing them so NNPCL officials can get their cuts from the cost of eternal repairs.

Privatisation is the only solution to the endless mismanagement of the refineries. The federal government should sell them to the highest bidder.

That would solve two of Nigeria’s major financial problems. It would plug leakages and conserve funds. Besides, it would conserve the billions of dollars spent annually on refined petroleum products imports.

Ultimately, government must bring the endemic crude oil theft to a logical conclusion. Government knows those stealing the nation’s crude oil and rendering the country financially handicapped.

They should be named and shamed. Besides, crude oil thieves, no matter their standing in society, should be arrested, prosecuted and sent to jail.

The money they made from the heinous crime should be forfeited to the federal government to serve as deterrent. That is the best way to plug the menacing leakages draining Nigeria’s lean resources.

Above all, the federal government must muster the courage to drastically cut the country’s outrageous cost of governance.