Nigeria’s growing debt service bill is on course to bring about dire consequences for its future generations, economy watchers have warned, saying this will slow down economic growth and development.
BusinessDay analysis of the available data from the Budget Office of the Federation and BudgIT, a Nigerian civic organisation, shows that Nigeria’s budgeted expenditure on education and health from 2012 to 2014 (N2.14 trillion) exceeded the debt service cost of N1.86 trillion.
But from 2015 to 2024, the budgeted debt service cost, which was N33.7 trillion, was more than the bill for human capital development of N16.5 trillion.
“With the level of mismanagement of the previous debts written off for the country, it will be almost impossible for any administration to get a similar gesture in the continent,” former President Olusegun Obasanjo was quoted in a statement as saying at an event earlier in the month.
“The coming generations will have no choice but to pay the current debt being incurred by different countries on the continent,” he added.
Over the past nine years, the actual cost of servicing debt has been more than the budgeted amount. In the first nine months of 2023, it rose to N5.79 trillion from N908.9 billion in the same period of 2015.
“Today’s debt is denying us of tomorrow’s growth and is creating the environment for more debt. The debt servicing makes it difficult to invest in those sectors, making us set the future to be in an even worse place,” Ikemesit Effiong, partner and head of research at SBM Intelligence, said.
He said Nigeria’s young people are the ones whose productivity capacity and energy will push the economy forward and then empower it to pay down debt and also grow the economy.
“So, not investing in them is setting yourself up to an even smaller economy before now and a country that is super dependent on borrowing to get funds,” Effiong added.
Adeola Adenikinju, president of the Nigerian Economic Society, said much of the country’s debt is not spent on things that can pay for themselves or can lead to capital for development.
“You will find out in the future that we will be depicting what is available for the future generation to finance the debt that we have incurred in the past,” he said.
According to the professor of economics, the most important factor in the future is human capital as it is the main driver of growth.
“So, if you are not preparing for that future by investing in education and health, then it means that your ability to compete with other countries and position yourself as a development hub may be compromised,” he said.
Africa’s biggest economy has seen its public debt grow steadily to levels that have left many worried as government revenues remain low. Its debt-to-GDP ratio was increased from 25 percent to 40 percent in 2021.
Debt service costs gobbled up 96.3 percent of government revenue in 2022, up from 83.2 percent in the previous year, according to the World Bank.
As of September 2023, debt service was N5.66 trillion, representing 40 percent of aggregate expenditure and 64 percent of revenue, Atiku Bagudu, minister of budget and economic planning said while presenting the highlights of the 2024 budget proposal.
He said the debt service cost exceeded the budget by N1.68 trillion mainly due to interest on Ways and Means of N1.89 trillion and generally higher interest rates on borrowings.
The Debt Management Office said in September that the total public debt rose to N87.38 trillion in the second quarter of last year from N49.85 trillion in Q1. It increased to N87.91 trillion at the end of Q3.
A recent report by the United Nations titled ‘A world of debt’ said the growing burden to global prosperity has been translating into a substantial burden for developing countries due to limited access to financing, rising borrowing costs, currency devaluations and sluggish growth.
“Countries are facing the impossible choice of servicing their debt or serving their people. Today, 3.3 billion people live in countries that spend more on interest payments than on education or health. A world of debt disrupts prosperity for people and the planet,” it said.
The UN projects that by 2050, Africa’s population will reach close to 2.5 billion. This means that more than 25 percent of the world’s population will be African.
Nigeria, the continent’s largest populated country, is one of the eight countries to account for more than half of the increase in global population.
In 2022, the country, whose young population comprises over 65 percent, surpassed Brazil to become the world’s sixth-most populous country, with an estimated population of 219 million people, according to the World Bank. And by 2050, it could be the world’s third-most-populous nation.
Countries with large and youthful populations have become targets for several developed nations in search of young professionals to help their businesses and industries battling widespread staff shortages.
Data from the population estimates and projections from US Census Bureau International Data Base, a global demographic product, show that the estimated working age (15-64) population of Germany will decline to 44.3 million by 2050 from 53.4 million in 2022.
The United Kingdom and Canada’s working-age populations are projected to rise marginally by 2.3 percent to 44.6 million and 4.9 percent to 25.8 million respectively, while that of Nigeria will rise by 107.4 percent to 259.9 million.
“Nigeria is the most populous country in Africa. This vast growth, both absolutely and relatively, creates the potential for live players in the country to have an outsized influence on the political and economic shape of the world this century, but only if functional institutions can be built,” Samo Burja, founder and president of Bismarck Analysis, said in a recent article titled ‘Nigeria is a Small Petrostate Attached to a Large Country’.
Over the past eight years, Nigeria has slumped into two recessions owing to the collapse of oil prices, disruptions caused by the COVID-19 pandemic and an inability of the government to reform the economy.
Before the National Bureau of Statistics (NBS) adopted a new methodology for labour statistics, unemployment had quadrupled to 33.3 percent as of Q4 2020 from 8.2 percent in Q2 2015. It was put at 4.2 percent for the second quarter of 2023.
The country’s inflation rate, a measure of the general price level which has been in double digits since 2016, rose to 28.92 percent in December from 28.20 percent in the previous month.
In Q3 of last year, foreign investments into Nigeria dropped to $654.7 million, the lowest level since the NBS started collating the data in 2013.
The poor macroeconomic conditions have pushed many young people to seek opportunities to travel abroad, fuelling a massive brain drain that is hurting the labour quality in the country.
According to the British government, the number of Nigerians given sponsored study or student visas rose by 768.7 percent to 59,053 in 2022 from 6,798 in 2019.
The number of new study permits issued by Canada to Nigeria increased by 17.8 percent to 16,195 as of December 31, 2022, the highest on record, from 13,745 in the same period of 2021.
“This goes back to the major point and criticism of most of our government that they do not take a visionary or futuristic approach to developing our economy. And not just our economy but having multiple sources of national income generation beyond oil and the skills that we have,” said Nneka Idam, HR partner, Africa and emerging markets at the Association of Chartered Certified Accountants.
She said the skills that the country typically has are individually funded as opposed to government policy initiatives. “So, we still have that small population who are educated in a manner that is meaningful, they are the ones that are leaving the country.”
Nigeria was ranked 163rd out of 191 countries in human capital development in 2021 and 109th out of 132 countries in global innovation index innovation last year, according to the United Nations Development Programme.
The United Nations Educational, Scientific and Cultural Organisation said the country also has one of the highest out-of-school children with about 20 million.
The World Bank projects that by 2030, the number of Nigerian youth needing jobs will increase to 40.2 million from about 30.8 million projected in 2021.
Last month, lawmakers approved the request for the securitisation of the N7.3 trillion owed by the federal government to the Central Bank of Nigeria. This will push the country’s public debt stock to at least N95.2 trillion.
“No matter how much Nigeria borrows to make the nation better, they are still losing either way because the talents and human capacity development is not going to be affecting their economy instead; they are just feeding the ground for international organisations to poach from the country,” Jennifer Oyelade, director of Transquisite Consulting, said.
Analysts at PwC Nigeria said in a report titled ‘Brain Exports: Growing the Nigerian Economy’ that the export of brain capital, an economic asset that integrates brain health and brain skills in the knowledge economy, can boost foreign exchange inflows into the country and shore up government revenue.
It said Nigeria must move from exporting the lowest value-added product (crude oil) to brain exports and receiving foreign cash flow along with other value-adding benefits critical for economic development.
“Nigeria has great potential as a nation for exporting brain capital as the cost of exporting high value-added services has shifted significantly in favour of the country’s integration into Global Value Chains,” the report said.
