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Nigeria, debt and productivity

According to Nigeria’s National Development Plan 2021-2025, the Federal Government plans to increase the nation’s public debt to N50.22 trillion by 2023, comprising N28.75 trillion domestic debt and N21.47 trillion foreign debt. That will come to a ratio of 57:43 between domestic and external debts.

As of September 2021, Nigeria’s total public debt amounted to N34.17 trillion, comprising N18.23 trillion domestic debt, and $37.95 billion external debt which at N420/$ equalled N15.94 trillion. The current split between domestic and external debt is 53:47. Under the Buhari-led APC administration, both the domestic and external debts have witnessed tremendous increase from June 2015 to September 2021.

Domestic debt, which amounted to N8.39 trillion as of June 2015 rose by 59.7 percent to N13.41 trillion by June 2019 and an additional increase of 35.9 percent to N18.23 trillion by September 2021. This implies that in the last six years, the nation’s domestic debt had risen by 117.1 percent! Admittedly, the rise in the amount of domestic debt follows the deepening of the domestic debt market with the introduction of more instruments. As of June 2015, Nigeria’s domestic debt market only had three instruments which were the Federal Government Bonds, Nigerian Treasury Bills and Treasury Bonds, only that the first two instruments accounted for 97 percent of the domestic debt market as at then.

The pertinent question at this juncture is: How have these loans-domestic and external, impacted on the Nigerian economy?

Four additional instruments were introduced in 2019 to broaden the market and to accommodate especially the ethical investors. These new instruments are the FGN Savings Bonds, FGN Sukuk, Green Bond and Promissory Notes. Looking at the structure of the domestic debt market, it is evident that the deepening of the domestic debt market is only in terms of the number of the financial instruments because in 2015 we only had three instruments whereas from 2019 and afterwards, the number of instruments increased to seven.

However, the domestic debt market is not truly broad in the real sense of it. This is because in 2021 just as it was in 2019, only two instruments- the Federal Government Bonds and Nigerian Treasury Bills accounted for 92 percent of the domestic debt market activities. Our searchlight was also beamed on the nation’s foreign debt. During the same reference period (June 2015 to September 2021), Nigeria’s external debt grew by 267.9 percent from $10.32 billion as of June 2015 to $37.95 billion as of September 2021. External debt came in from four major sources. These are the multilateral, bilateral, commercial and promissory notes. Apart from promissory notes which joined the list of external debts’ sources in 2021, the three other sources grew considerably during the reference period.

Read also: Six numbers that shaped Nigeria’s 2021 debt profile

Multilateral loans grew by 75.8 percent between June 2015 and June 2019, and rose by 43.8 percent between June 2019 and September 2021. In all, it grew by 152.8 percent from $7.23 billion as of June 2015 to $18.28 billion by September 2021. Bilateral loans increased by 107 percent between 2015 and 2019, and by 34.2 percent between 2019 and 2021, which implies a growth of 177.7 percent from $1.58 billion in 2015 to $4.39 billion in 2021. The commercial loans recorded the steepest growth rate among the external loan sources. From $1.5 billion in June 2015, it rose to $11.16 billion in June 2019, representing 644.6 percent upsurge, and to $14.66 billion as of September 2021, representing additional 31.3 percent growth. This means between June 2015 and September 2021, the commercial wing of Nigeria’s external debt rose by 877.9 percent.

The pertinent question at this juncture is: How have these loans-domestic and external, impacted on the Nigerian economy? Undoubtedly, the cost is huge. First, this manifests in the amount of resources that go into debt servicing annually. Second, real economic growth rate is not convincing enough. Our appraisal is based on the fact that six years are not too short a period in the life of a nation to start making noticeable economic progress. From the first quarter of 2016 to the third quarter of 2021, the real GDP growth rate averaged 0.6 percent.

The highest real GDP growth rates were recorded in the second and third quarters of 2021 at 5.01 percent and 4.03 percent respectively due to the low base effect. Considering the real GDP growth trends of the last twenty-three quarters, we can regard the real growth rates in Q2 and Q3 of 2021 as outliers. On the whole, if with the injections of both the domestic and external debts into the Nigerian economy in the last twenty-three quarters could only produce stuttering economic growth rates, the time is now for the stakeholders- federal government, Central Bank of Nigeria (CBN), Debt Management Office (DMO), and the Federal Ministry of Finance to critically appraise the assumptions on which sourcing these loans were base. They should also take on board their usage and whether or not to continue processing other loans in the pipeline.

The compelling need for this appraisal is based on the rationale that future generations of Nigerians should not be burdened with the follies of contemporary Nigerian leadership. Moreover and as stated in our national anthem, the labours of our heroes and( heroines!) should not be in vain. Therefore, let us take a patriotic and serious look at our debt profile. This is with a view to ensuring that Nigeria’s best interests are served.

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