Debt is a global problem. The rich and the poor are in it. Ironically the rich are more indebted than the poor. The most indebted country in the world today in terms of debt to gross domestic product (GDP) ratio is Japan, the world’s third largest economy. Japan’s $11 trillion debt is 234 per cent of its $4.8 trillion GDP. By implication, each Japanese owes an intimidating $90, 134.
It terms of cash, the most indebted nation in the planet is the world’s largest economy, the United States of America (USA). America’s debt is $21 trillion or about 105 per cent of its $19 trillion GDP. America’s per capita debt is $69, 060.
Ironically the two most indebted nations are very rich nations and would never default in their mountain of debts. Nigeria is not a rich nation. It is not poor either. In nominal GDP terms, Nigeria ranks number-27 in a list of the world’s 50 richest nations.
Judging from the debt to GDP ratio, Nigeria cannot be rated as a heavily indebted nation. Nigeria’s national debt of $83 billion is slightly above 23 per cent of its GDP. Each Nigerian implicitly owes a scant $554.
Last week Nigeria’s 9th Senate rubber-stamped the request for $22.9 billion foreign debt submitted by President Muhammadu Buhari. That would push Nigeria’s national debt perilously close to $110 billion or about 26 per cent of GDP. External debt would stand at a record $48 billion. Nigeria has never been that indebted in its history.
The mounting debt is already driving foreign investors away. They refuse to invest in Nigeria because the high cost of servicing the moderate debt has ruined the country’s infrastructure.
Nigeria’s brewing debt crisis is engendered by an odd combination of low revenue and gross mismanagement of its lean income. Nigeria’s debt is moderate when compared to that of Argentina. At $446.873 billion, Argentina’s debt is about five times that of Nigeria.
However, the South American country has used the debt to build infrastructure that diversifies the economy and enables it to earn more from exports. Argentina services its debt with less than 45 per cent of its export revenue because it earns more than 105 per cent of Nigeria’s export revenue. Besides, as a highly diversified economy with solid industrial base, Argentina borrows at lower interest rate than Nigeria because it is treated as a low risk borrower even as that economy has collapsed two times in the last 40 years.
Conversely, Nigeria depends on crude oil exports for 90 per cent of its foreign exchange earnings. Now that the price of crude oil has dropped below $50 per barrel, Nigeria’s 2020 budget is in deep trouble.
The rulers of Argentina are better managers than their Nigerian counterparts. With debts about five times that of Nigeria, Argentina’s poverty rate is a scant 7.1 per cent. Unemployment rate stands at 9.9 per cent. Nigeria with relatively low debt burden has unemployment rate of 23.1 per cent and a poverty rate of 60 per cent which makes it the world headquarters of abject poverty.
Japan with a debt ratio of 234 per cent of GDP services its debt comfortably because most of its debt instruments are in the hands of private Japanese at negligible interest rate. Most of Nigeria’s debts are commercial debts which attract unacceptably high interest rates.
The trouble with Nigeria’s debt is the cost of servicing which has deprived government of funds to rehabilitate decaying infrastructure. The decaying infrastructure has driven many existing investors out of the country and has stopped prospective ones from entering. They are equally disturbed by Nigeria’s dwindling foreign reserves. Most of the foreigners in Otta, Ogun state’s industrial hub have fled the town because of deplorable roads.
Japan’s mountain of debts was raised to stimulate an economy which was in recession for several years. The money was raised to build roads and stimulate public spending.
Most of Nigeria’s debts are used to pay the salaries of workers in an outrageously large and redundant civil service and indulge the stupendous live styles of less than 2, 000 politicians and top civil servants who consume 70 per cent of the nation’s budget. That is why economic growth is sluggish.
By incurring more debts to build infrastructure, the federal government is just following the line of least resistance. There are other ways of funding infrastructure developments without pushing Nigeria into the infamous club of mega debtor nations.
Nigeria’s tax to GDP ratio of 6.5 per cent is one of the lowest in the world. Ghana and impoverished Burkina Faso have double digit tax to GDP ratios. The federal government has done very little to improve Nigeria’s tax revenue. The recent 50 per cent increase in value added tax (VAT) amounts to over-taxing the few in the country’s porous tax net.
Nigeria’s unwieldy informal sector is a huge disincentive to tax collection because government is not willing to build a data base that would capture the tax-evading super-rich in the informal sector.
Government has equally ignored the involvement of private investors in infrastructure development. What is needed is the enactment of laws that successive governments cannot repeal with a wave of the hand. Such laws would convince private investors that their money would not be washed down the drain when a new government takes power and tries to shift the goal post while the ball is in flight.
Nigeria’s debt is very moderate. But the cost of servicing it is clearly unwieldy and burdensome because Nigeria is a high risk borrower and its economy is one-handed.
Chalking up more debts is the most dangerous way of rehabilitating Nigeria’s decaying infrastructure. The most worrisome part of the proposed $22.9 billion foreign debt is that it is badly timed. The administration incurring the debts may not have the time to execute the planned projects.
Besides, many are worried that a good chunk of the jumbo loan might end up funding the 2023 election campaigns.
