The International Monetary Fund (IMF) has returned a rather strangely positive rating of Nigeria’s mountain of debts. Gita Gopinath, first deputy managing director of IMF, believes that Nigeria’s debt has not reached crisis point. In other words, Nigeria’s debt in the view of IMF is still sustainable.
Gopinath was however quick to warn that the IMF positive rating of Nigeria’s debt was not an open cheque to the country’s rulers to acquire more debts. IMF believes that at 52.8 per cent of gross domestic products (GDP), Nigeria’s debt was still in its comfort zone.
The World Bank threshold (danger zone) for developing countries’ debt is 55 per cent of GDP. However, Nigeria is perilously close to the World Bank threshold for developing countries’ debt. That is why some experts are worried about the IMF view that Nigeria’s debt is still sustainable.
While it is convinced that Nigeria’s debt at 52.8 per cent of GDP is still sustainable, IMF is however worried about the spending pattern of the federal government. Gopinath warned that though the reform programmes of the federal government are successful and making Nigeria attractive again to foreign direct investors, the system has pushed something close to 100 million Nigerians below poverty line.
Again, the IMF poverty figure on Nigeria is very conservative. Other assessors conclude that 140 million Nigerians are in abject poverty. IMF blames the despicable level of poverty in Nigeria on the absence of a social security system that unemployed people could fall back on.
Gopinath was so worried about the poverty level in Nigeria that she advised the federal government to promptly set up a social security structure to protect those impoverished by the removal of petrol subsidy and the mismanaged unification of the exchange rates of the naira.
She further encouraged the federal government to plough the proceeds of the removal of petrol subsidy into government reserves rather than using it to finance the gaudy lifestyle of government officials.
I belong to the IMF school of thought which believes that Nigeria’s debt is still sustainable. I equally share the IMF view that the poor are currently not benefiting from the proceeds of the removal of petrol subsidy and the mismanaged unification of the exchange rate of the naira.
The exchange rate of the naira went in a different direction from the prediction of the World Bank because the Central Bank of Nigeria (CBN) grossly mismanaged the exchange rate unification and allowed some corrupt and greedy managers of banks to hoard allocated foreign exchange and create artificial scarcity that escalated the depreciation of the naira and worsened poverty through spiraling inflation.
The World Bank had all along argued that exchange rate unification will erode the attractive margin between official and parallel market rates and enhance the appreciation of the naira.
Ironically, the CBN merely unified the exchange rates of the naira and failed to monitor the use of the foreign exchange allocated to banks.
Some of the banks hoarded the forex and created artificial scarcity that escalated the depreciation of the naira. The disorderly retreat of the naira in the foreign exchange market is partially responsible for the mountain of debts incurred by the federal government.
For instance, the naira depreciated by 11.9 per cent in the third quarter of 2024 as it dropped to N1,579.22 to the dollar and instantly pushed up the cost of servicing the country’s foreign debt by 9.2 per cent.
The IMF warning to the federal government that its positive assessment of Nigeria’s debt crisis was not an invitation to further debts acquisition might be difficult for the federal government to obey.
The oil projections for the 2025 budget are already crumbling like packs of cards. Oil price in the global market is $3 below the 2025 budget oil reference price of $75 per barrel.
Nigeria’s oil production is 500,000 barrels below the budget oil production rate of 2 million barrels per day. And there are fears that with the chaotic tariff policy of America’s President Donald John Trump pushing the world close to trade war, the performance of the global economy will take a dramatic plunge that will take a toll on crude oil consumption and force down prices below current levels.
Under that circumstance, Nigeria has very little option than to incur more debts as budget deficit mounts.
Besides the looming trade war taking a toll on global economic performance and consequently slowing crude oil demand, there are strong indications that Trump may ease sanctions on Russia.
That would automatically open the way for Russian oil to flood the global market and worsen the oil price crisis. That leaves the managers of Nigeria’s budget 2025 in a dilemma.
Everyone is praying for things not to slip out of total control because the budget oil projections were indefensibly sanguine.
That may be the reason why experts in Afrinvest and other reputable rating firms already adjudge Nigeria’s debts as unsustainable at the moment.
Those who hold this view contend that Nigeria spends 73 per cent of its miserable revenue on debt service leaving nothing for the execution of capital projects.
They contend that Nigeria’s national debt stands menacingly at N142.3 trillion. Domestic debt is N74.4 trillion while foreign debt stands at N68.9 trillion.
The problem with Nigeria’s debt is its abysmally low revenue. The IMF itself sees this as the major problem. IMF has consequently advised government to overcome its low revenue catastrophe with more tax revenue.
Nigeria has one of the world’s lowest tax revenue. In fact, that has been one of the reasons why Nigeria with its economy constituting 60 per cent of the Economic Community of West African States (ECOWAS), cannot meet the community’s basic requirement of 15 per cent tax to GDP ratio to qualify as member of the Eco currency zone.
Nigeria’s tax revenue just inched up 10 per cent of GDP. Like the IMF insists, the solution to Nigeria’s debt crisis lies in beefing up tax revenue.