Nigeria’s economy is not growing at the pace of its debt, a sign that Africa’s most populous nation is racking up debt in an unsustainable manner.
While the Federal government’s debt stock has nearly doubled to N24 trillion in four years, growth in economic activity has been stuck at around 2 percent.
Latest GDP data for the second quarter (Q2) of 2019 showed growth slowed to 1.9 percent from a revised 2.1 percent in the first quarter.
The Debt Management Office is yet to publish the Federal government’s debt stock in Q2 but going by the 2019 budget debt predication, the figure will rise some N500 billion every quarter this year to reach N26 trillion by year end.
The most recent data showed that the FG’s debt stock rose by N514 billion in the first quarter, which is in line with the 2019 full year projection.
Economists suggest countries should borrow money to invest in infrastructure and other economy-stimulating activities that results in a multiplier effect.
In Nigeria’s case, most of the N10 trillion borrowed in the last four years has been used to pay salaries and run an over-bloated civil service.
“Rising debt has failed to impact economic growth because the government is borrowing to fund recurrent expenditure while low revenues mean there isn’t much left to invest in capital projects when public salaries have been paid,” said Taiwo Oyedele, a partner and head of tax at Price Waterhouse Coopers (PWC).
“The way out is through reforms that create an enabling environment for the private sector to invest in the economy and stimulate growth,” Oyedele added. Recurrent expenditure has snatched over 70 percent of the Federal government’s total spending for four years now. Same as was the case even with the previous administration.
Nigeria should be channelling more cash into infrastructure and human capital, according to the World Bank, which says the economy is negatively affected by a yawning infrastructure deficit and deteriorating human capital.
Most will agree.
The country has an infrastructure deficit that requires $100 billion annually for the next 30 years, according to the African Development Bank.
The country’s education and health systems are collapsing. One of every five out-of-school children in the world are in Nigeria, according to the United Nations International Children’s Emergency Fund (UNICEF).
To highlight the state of Nigerian health care relative to peer countries, the average Nigerian’s life expectancy of 54 years is dwarfed by South Africa and Ghana’s 63 years each. The average Kenyan (67 years) is also expected to live longer than the average Nigerian by a gap of 13 years, while the average Egyptian is expected to live for 71 years, World Bank data shows.
Health and education have accounted for less than 10 percent of the government budget in the last decade.
“Time is fast running out for the government to wake up and smell the coffee,” a senior banker told BusinessDay in condition of anonymity, as he isn’t authorized to speak on behalf of his company.
“The danger in borrowing to fund unproductive needs is that it eats into public revenues that could have been better utilized and is a heavy burden for the future,” the person said.
While previous administrations lacked the political will to spend more on these critical areas, the current government not only lacks the political will, it also lacks the revenues.
Oil revenues have slumped with the global price of oil. From as high as $110 in 2014, oil is closer to $60 currently, nearly half of 2014’s price. That has capped government spending and led it to borrow.
The worry now is that most of that debt, in their huge sums, may not have been channelled rightly, as exposed by the trend in GDP growth.
Instead it is being gulped by recurrent expenditure and more recently, debt servicing.
The government’s debt to revenue ratio topped 60 percent last year, the highest in eight years, but the finance minister, Zainab Ahmed, said Nigeria has a revenue problem, not a debt problem.
Critics argue that the country has both problems. A revenue to GDP ratio of 6 percent ranks Nigeria as one of the lowest continentally and globally.
Analysts say Nigeria can tap private capital to address most of its problems. With the right amount of capital flow into critical infrastructure, the government can free up its scarce revenues for social investments.
The government would also need to plug revenue holes by ending the N1 trillion it pays to subsidize petrol.
The numbers show that the petrol subsidy isn’t as beneficial to the poor, most of whom do not own cars or petrol-powered generators.
Eliminating the subsidy and liberalizing the downstream petroleum sector will encourage private investment and boost economic growth.
The telecommunication sector is a shining example of what liberalization can do for the economy. The sector was the best performer in Q2 with growth of 11 percent.
It contributed 63 percent to total GDP growth.
Another weak link between government spending and impact showed up in the Q2 Agriculture GDP.
Agriculture grew by 1.8 percent for the period compared with 3.2 period recorded in Q1.
However the sector’s performance should be significantly better given the several government interventions channelled towards agriculture.
LOLADE AKINMURELE
