Poverty and unemployment are increasing, population and insecurity escalating and yet we are just borrowing for public servants and politicians to consume.
With good training in econometrics, economists can create a correlation between almost everything and justify anything they want to justify. While one economist can argue that an economy is in recession, the other will maintain that the same economy is getting ready for a rapid growth or even for a steady state growth!
This seems to be the situation we find ourselves with our exponentially increasing national debt.
It is like the more we shout of the impending debt crisis, the more some economists within the government are prodding the government to borrow more; their pathetic reason is that we are still within the 25 percent debt-to-GDP ratio. Excited with such advice, the government seems to be on a borrowing extravaganza increasing the total public debt from about $65 billion in 2015 to the current $81 billion (over N24 trillion) as at March 2019. The increase is significant, 25 percent in four years and 2.3 percent in just three months from January to March 2019.
Even with such unjustifiable and unsustainable increase, we are told not to worry! Relax, debt-to-GDP ratio is just about 19 percent, so we can borrow more and most likely from China.
Chinese concessionary loans have a low interest rate of about 1.5 percent compared to commercial loans from Europe and North America at about 6 to 8 percent.
This is the gospel from His Excellency, Pastor Yemi Osinbajo on his recent international preaching circus to American investors organized by Council of Foreign Relations in New York. While there is no doubt of Professor Osinbajo’s unshakeable inclined correctness of every action and inaction of the government, there is a serious concern as to the increasing obstinacy of the government especially on matters with both immediate and inter-generational consequences.
Through a combination of the goodwill of a fresh returnee to democracy, international diplomacy and expertise in economics and finance, the administration of former President Obasanjo secured a huge debt relief in 2005/2006. The major question is how we have returned to the same level of debt within a very short period and with very little to show or justify the unbelievable increase?
Lamentably, with the impending contingent liabilities of about $9 billion to Process & Industrial Developments (P&ID) and another $2.3 billion to another firm, it is difficult to understand how we can avoid the impending crisis. Moreover, in discussing our debt situation, a most important factor that the government prefers to avoid is the cost of debt service.
A situation where we use about two-thirds of our revenue for debt service cannot be described as appropriate and sustainable. In the 2019 budget, while recurrent expenditure is allocated N4.07trillion, capital expenditure is N2.09 trillion with debt service at N2.14trillion. I am referring to cost of servicing (not repaying) the debt. Just interest payments only! This is a country where all the economic development and growth indicators all point south. Poverty and unemployment are increasing, population and insecurity escalating and yet we are just borrowing mainly for public servants and politicians to consume.
With the way we are borrowing, the caution of Benjamin Franklin that ‘he that goes borrowing, goes sorrowing’ will soon be our situation. Like most developing countries, we started with concessional loans from developed countries and institutions but as it dried up, we turned to commercial loans. As the interests ballooned, we ran into a debt crisis which after hard negotiations, we got some debt relief during Obasanjo’s regime.
Rejoicing in our laziness and absence of a determined strategy to diversify the economy, China now disguises their own debt colonization as China Belt and Road Initiative to which we elatedly accept and elect to advertise. ‘We are part of the initiative and we subscribe to it’, Professor Osinbajo proudly tells the Americans!
I think the man needs a detailed economic retreat to understand that debt is a cyclic economic vampire. What Nigeria needs is a strategic management and exit from debts and not a second phase of Chinese debt entanglement after the miraculous exist in 2005/2006, a friend called and said after listening to Osibanjo in America.
Just as we started with concessionary loans in the 1970s and 1980s with Western lenders, so we are doing with the Chinese now. As we lack diligent and prudent management of our resources and the loans, we are very close to a set of crises: debt, liquidity, fiscal and socio-economic and political. With multilateral and commercial debts accounting for about 88 percent of our total external debt, it is clear that our current preference for bilateral and concessionary loans from China will not save us from the impending debt-induced crises. What is required is a properly formulated and executed national economic development strategy.
Our present debt and socio-economic crisis are way beyond the Next level campaign document or the recent limited economic plan announced by the government. With the cabinet announced and screened, it is imperative that a well selected economic team with a pro-poor patriotic inclination is urgently constituted.
As I have earlier advocated, it should be made up of some key ministers, members of the private sector and the academia. Of the present 43 ministers, it seems that there is just one economist, Gbemisola Saraki with only a first degree in Economics from University of Sussex. With such a cabinet, it is difficult to see how Nigeria will be saved from the impending crisis if urgent steps are not taken starting with the creation of a robust economic team to effectively craft and execute a national economic development strategy!
Franklin Ngwu
Dr. Ngwu is a Senior Lecturer in Strategy, Finance and Risk Management, Lagos Business School and a Member, Expert Network, World Economic Forum.
