In its half-year 2020 economic report, the Central Bank of Nigeria (CBN) stated as follows: “despite the subsisting revenue challenge, which was exacerbated by COVID-19, the larger proportion of Federal Government of Nigeria (FGN) revenue was devoted to debt service”.
While a staggering N2.95 trillion was allocated for debt service in 2020 budget of about N10.8 trillion, we have already used about N1.5 trillion as at June 2020 to service our debts. Moreover, while we are all lamenting and cautioning on the insatiable appetite for debts of the PMB led government, it seems that the more we shout, the more excited the governments gets to borrow more.
Just from March 2020 when our public debt stood at N28.628 trillion, the PMB led government significantly borrowed more within three months to increase our debt to N31 trillion as at end of June 2020. To make matters worse and more disturbing is the absence of a convincing plan on how to stop the unsustainable borrowing and debt accumulation. Rather than planning on how to reduce or stop the ballooning debt, the government is bent on borrowing more even from unimaginable places with Brazil, the latest!
While economists can create a correlation between almost everything and justify anything they want to justify, it is very confounding to explain the voracious appetite for debt accumulation of PMB government with the little or limited development/ growth outcomes.
In the proposed N13.08 trillion 2021 budget, the deficit is about N5.2 trillion with debt service allocated a whooping N3.124 trillion (about 24 percent of the budget)! This is debt service alone not paying back the main debt. Interestingly and in comparison, only N3.85 trillion is allocated for capital expenditure.
While economists can create a correlation between almost everything and justify anything they want to justify, it is very confounding to explain the voracious appetite for debt accumulation of PMB government with the little or limited development/ growth outcomes.
When PMB took over in 2015, Nigeria’s total debt including both foreign and domestic ones stood at about $11 billion. As at today, it is about $34 billion and exponentially increasing! With such mind-blowing borrowing of about $23 billion in about 6 years of PMB’s government, one would expect to see a corresponding massive development and growth in the economy. In 2014, a year before PMB took over, Nigeria recorded a GDP growth of 6.3 percent and in 2013 and 2012, it was 5.4 percent and 4.3 percent respectively. With about $23billion already borrowed, our GDP growth is projected at negative 3.4 percent in 2020. In 2019, it was 2.2 percent and in 2018, it was 1.9 percent.
Even when the goodwill and body language were at the peak, we recorded only 2.7 percent in 2015 and then landed in recession in 2016 with a negative growth of 1.6 percent and then 0.8 percent in 2017. In 2019, Ghana recorded a GDP growth of about 6.7percent, Ethiopia 9 percent, Egypt 5.6 percent, Senegal 6.3 percent, Cote d’Ivoire 7.4 percent and Tanzania about 6.8 percent. With such impressive growth in other African countries, the only explanation for Nigeria’s situation is poor management of the economy.
Even with such unjustifiable and unsustainable increase, we are told not to worry! Relax, we are just about 19 percent of Debt to GDP ratio, so we can borrow more from China and any other place we get money such as Brazil. While there is no doubt of government’s inclined posture of correctness of their actions and inactions, there is a serious concern as to the increasing obstinacy of the government especially on matters with both immediate and inter-generational consequences.
Recalling how through a combination of factors such as good will from return to democracy, international diplomacy and expertise in public economics and finance, the Obasanjo regime 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.
With the way we are borrowing, the caution of Benjamin Franklin that ‘he that goes borrowing, goes sorrowing’ is currently our situation. Recalling that 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 told the Americans last year! Now that we cannot borrow the much we need from China, we have turned to Brazil for additional $1.2 billion. Who bewitched Nigeria!
Just as we started with concessionary loans in the 70s and 80s with Western lenders, so we are doing with the Chinese now. As we (Nigeria) lack diligent and prudent management of our resources and the loans, we are now in 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 and other countries cannot save us from the debt induced crises. What is required is a properly formulated and executed national economic development strategy to exit from debts and not a second phase of Chinese debt entanglement after the miraculous exist in 2005/2006 or our current desperation for loan from all unimaginable sources.
Our present debt and socio-economic crisis are way beyond the present approach as contained in the National Economic Sustainability Plan or the recent medium-term economic development plan announced by the government. It requires creativity, innovation and effective leadership to harness untapped annual revenue of over N25 trillion from Agriculture, over N50 trillion from little adjustment of our exclusive and concurrent legislative list and many more untapped opportunities scattered across our immensely endowed and blessed country, Nigeria!
Dr. Ngwu, is an Economist/Associate Professor of Strategy, Risk Management & Corporate Governance, Lagos Business School and a Member, Expert Network, World Economic Forum. E-mail- [email protected]
