Towards the tail end of the year 2019, discourse on Nigeria’s debt profile exploded in the social media, especially Twitter, when former President Olusegun Obasanjo spoke on the potential risk of bankruptcy facing Nigeria because of its penchant for loans under the current administration. The words of the former president elicited reactions from Nigerian and government officials seeking to refute or approve his claims on the possibility.
The concept of debt is inherent in all aspects of life across individuals, corporates, government agencies, and also the global space; what is certain, however, is that no one enjoys accumulating debt as it threatens the success of any entity if not disciplined in its management. Hence, when incurring obligations, it is wisdom to channel such funds into productive activities that would generate enough revenue knowing well enough that taking a loan today means upfront consumption, so wasting it means creating a vacuum of income in the future.
Nigeria’s public debt portfolio as at 30 June 2019 had increased to $83.88 billion (N25.70 trillion) at an official exchange rate of $1 to N306.40 with total external debt accounting for 32.38 per cent and total domestic debt, 67.62 per cent respectively, according to data by the debt management office. The current debt level of Nigeria stands at 31.46 per cent above levels as of June 2015 ($63.8 billion) when the exchange rate was N155 to a dollar.
Ironically, there has not been justifiable growth in the Nigerian economy as our measure of economic performance GDP as barely grown at two percent in the last four to five years. The situation begs the question, for what did the nation use the borrowed funds? From performance, we can infer that these funds lacked discipline in management and the authorities used them for the wrong causes.
“There is yet no cause for alarm. -This is because Nigeria has a debt ceiling of 25 per cent in the total public debt stock to Gross Domestic Product (Debt/GDP), which it has operated within. The ratio for Dec. 31, 2018, and June 30, 2019, were 19.09 per cent and 18.99 per cent respectively.” These were the words of Lai Mohammed, Nigeria’s minister of information at a press briefing in Lagos.
The minister is missing the point. Nigeria’s debt to GDP ratio may be within acceptable limits but is not a justification to keep borrowing with little or nothing to show for it.
“A well-calibrated debt for infrastructure and other developmental goals could be very positive. However, we do not need to speculate. We need to examine our historical experience. Everyone knows that our governments are notoriously deficient in serious and adequate discipline and most often lack competence and consistency as well,” ex-president Olusegun Obasanjo stated.
Projects like the Lagos light rail which can fund itself and repay its future income vacuums are reasonable justification for government borrowings, but sadly, the light rail has remained a rocket science.
The downside to this is that when we keep funding activities or projects without the ability to fund itself and generate revenue, we keep using up more than 50 percent of government revenue – which we should deploy to grow the economy – to service debt as the case is today. Such a position has proven to be detrimental to the wellbeing of the people and the economy at large.
Fuelling further our thirst for debt would likely position Nigeria in a debt overhang situation – a condition where the existing debt is so high that the country cannot easily borrow more money, even when that new borrowing is a good investment that can pay for itself. This can lead to under-investment.
With the new $22.9 billion – a balance from $30 billion loans approved in 2016 – loan yet to approved by the National Assembly, how well can we trust the federal government to deploy such fund to infrastructural development after it failed to use the initial $7 billion to infrastructure development?
With about 77 percent coming from China, Nigeria risks losing whatever collateral pledged to the control of the Chinese upon default. We must, as a country, be intentional and disciplined in concentrating borrowed funds into viable projects that will reflect on economic performance.
