Nigeria risks suffering the same fate as Sri Lanka, experts have warned, as the soaring prices of everything from food to fuel continue to bite many Nigerians while the government battles rising debt amid low revenues.
For months, the demands of the people, angry over Sri Lanka’s worst economic crisis in 70 years, were loud and clear. The slogan, “Gota Go Home” is the war cry that has sounded over shortages of food and fuel that have caused prices to soar.
Angered over the country’s worst economic crisis in seven decades, protesters on Saturday descended on the capital, Colombo, broke into President Gotabaya Rajapaksa’s official residence as images and videos of them taking a dip in the compound’s swimming pool and some even tuning in to a game of cricket on television went viral on social media.
The culmination of months-long protests on Sunday led to both President Rajapaksa and Prime Minister Ranil Wickremesinghe agreeing to step down. Rajapaksa, whose whereabouts was unknown as of the time of this report, said he would leave office on Wednesday, according to the parliamentary speaker. Wickremesinghe said he would depart as soon as opposition parties agree on a unity government.
In Africa’s biggest economy, there is growing concern that suggests Nigeria’s soaring unemployment rate and recent energy crises put it on the cusp of the humanitarian catastrophe playing out in Sri Lanka, according to several experts interviewed by BusinessDay.
“Nigeria is 15 months from a Sri Lankan scenario. In the FCT (Federal Capital Territory), we spend an average of five hours getting petrol. Diesel prices are above the reach of many. Gas is expensive,” said Ademola Adigun, former country team lead for the Facility for Oil Sector Transparency and Reform.
“The Abuja problem might get to more cities if the price of crude does not fall. All we should be saving from higher crude prices is spent on subsidy. No place is secure. There are probably more police escorting VIPs than providing security for citizens,” he added.
Opeyemi Agbaje, CEO of RTC Advisory Services Ltd, believes Nigeria could be at risk of having Sri Lanka’s economic crisis if the debt service to revenue ratio is used as an economic index for growth.
Sri Lanka announced in April that it was suspending repayment of foreign loans due to a foreign currency shortage. Its total foreign debt amounts to $51 billion, of which it must repay $28 billion by the end of 2027.
“Nigeria’s debt to revenue will soon soar above 90 percent, which means the country is at risk of a Sri Lanka uproar,” Opeyemi said.
Findings by BusinessDay showed Nigeria’s Federal government incurred a sum of N4.22 trillion on debt servicing in 2021, increasing by 29.3 percent compared to N3.27 trillion spent in the previous year.
This means that Nigeria spent about 96 percent of its revenue on servicing debt obligations in 2021, compared to 81.1 percent in 2020.
Muda Yusuf, former director-general of the Lagos Chamber of Commerce and Industry, believes that despite Nigeria’s macro-economic challenges, the country may not get to Sri Lanka’s current economic crises.
“This is because Nigeria is an oil-producing country which it exports to earn foreign exchange. Although it is not meeting its expected oil production capacity,” he said.
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In several major cities, including Sri Lanka’s commercial capital, Colombo, hundreds continue to queue for hours to buy fuel, sometimes clashing with police and the military as they wait. Schools have been suspended and fuel has been limited to essential services.
Sri Lanka’s inflation hit a record high of 45.3 percent in May, according to the latest government figures. Food prices leapt 58 percent in May from a year earlier, while transport costs jumped 76.7 percent. For many middle-class families, vegetables such as cabbage, cauliflower and carrots are now considered luxury food items.
Sri Lanka’s experience
Most Sri Lankans blame the Rajapaksas – a powerful political dynasty that once held the presidency, the prime minister’s office as well as the finance, interior, and defence portfolios for mishandling the economy.
Since he assumed office in 2019, President Gotabaya Rajapaksa has overseen a series of populist policies that read like a checklist on how to kick-start an economic meltdown.
Shortly after his election, Rajapaksa followed through on a campaign promise to make sweeping tax cuts, disregarding expert advice and depleting the state’s coffers.
Analysts say massive infrastructure projects undertaken with Chinese investment made the strategically located Indian Ocean Island nation a textbook case for economists warning of a “Chinese debt trap”.
With the president’s nephew serving as agriculture minister, the government then implemented a blanket ban on chemical fertilisers, decimating Sri Lanka’s critical agricultural sector.
As foreign reserves plummeted, the government was unable to pay for food imports – including the national staple of a country that was self-sufficient in rice-growing before the fertiliser ban.
When the pandemic struck, experts and opposition politicians urged the government to begin bailout talks with the International Monetary Fund (IMF).
The Rajapaksa administration, however, held its ground, waiting for a post-pandemic recovery of the tourism sector until a new finance minister, appointed in April, finally sought the IMF’s help.
“Sri Lanka is bankrupt,” the country’s Prime Minister Ranil Wickremesinghe said last Tuesday.
Wickremesinghe told lawmakers that negotiations with the IMF to revive the country’s “collapsed” economy are “difficult,” because the South Asian nation of 22 million has entered the talks as a bankrupt country, rather than a developing one.
“We are now participating in the negotiations as a bankrupt country. Therefore, we have to face a more difficult and complicated situation than previous negotiations,” he said in parliament.
Sri Lanka’s inflation hit a record high of 45.3 percent in May, according to the latest government figures. Meanwhile, food prices in May leapt 58 percent from a year earlier, while transport costs jumped 76.7 percent. For many middle-class families, vegetables such as cabbage, cauliflower and carrots are now considered luxury food items.
In several major cities, including Sri Lanka’s commercial capital, Colombo, hundreds continue to queue for hours to buy fuel, sometimes clashing with police and the military as they wait. Schools have been suspended and fuel has been limited to essential services.
President Rajapaksa tweeted last Wednesday that he had sought assistance from Russian President Vladimir Putin and requested “an offer of credit support to import fuel.”
Nigeria’s experience
Like Sri Lanka, Nigeria is plagued by many headwinds, now unrecognisable from the country that was forecast in 2015 to be the first African country to hit a GDP of $1 trillion.
Africa’s biggest economy has slipped into two recessions since President Muhammadu Buhari came to power in 2015, and insecurity has worsened, with killings and kidnappings on the rise. Foreign investments have plunged and the naira has tumbled.
Nigerians have had to bear the brunt of an economy stuck in a rot. With businesses groaning from rising production costs, which have worsened this year amid spiralling inflation, job creation has suffered and unemployment ballooned.
While it would appear that the economy has improved in the last one year after an exit from recession and six straight quarters of growth culminating in a 3.11 percent growth in the first quarter of 2022, most of it is elusive, according to multiple interviews with businesses and individuals.
The economy’s recent recovery is eluding the vast majority of Nigeria’s 200 million people because it has not been able to reduce poverty or lead to the creation of sufficient jobs.
“One thing that is clear to any discerning person is that the next president must find a way to increase revenues and cut out wasteful spending,” Taiwo Oyedele, an economist, who is also a partner and head of tax and regulatory services at PWC Nigeria, said.
