Nigeria’s rising borrowing cost could threaten the stability and prosperity of its future of generations, experts say.
Over the past decade, the federal government has spent more on servicing its debt than on critical sectors of the economy such as health and education.
The country’s budgeted expenditure on health and education from 2012-2014, which was N2.14 trillion, exceeded its debt service cost of N1.86 trillion.
But from 2015-2024, the budgeted debt service bill of N33.7 trillion was more than that for health and education (N16.5 trillion). The total amounts budgeted for debt service and human capital development from 2012-2024 were N35.5 trillion and N18.6 trillion respectively.
“The scale of servicing debt was lower compared to now, which may have given the past administration at that time the opportunity to allocate more funds to education and healthcare. But since Buhari’s tenure and up to this present administration, the dynamics have changed as the debt profile has ballooned significantly,” Israel Odubola, a Lagos-based research economist, said.
He added that the government should mitigate the repercussions of high debt costs by fostering an environment conducive to increased private participation and ensuring that allocated funds are directed efficiently and productively to achieve the desired outcomes.
In this year’s N28.8 trillion budget, debt service takes 28.8 percent, while spending on education will consume 7.6 percent and healthcare gets 4.6 percent.
Adeola Adenikinju, president of the Nigerian Economic Society, said the solution lies in growing the revenue base and allowing for alternative ways of financing infrastructure and capital expenditure.
“This will include bringing in the private sector, either local or foreign, to take over some of the activities or infrastructure that some of the governments are funding presently. It will reduce the pressure for the government to go and borrow to finance those activities,” he added.
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.
“If we are able to secure multilateral funding to disproportionately invest in primary education and healthcare, it will set us up in a better place economically,” Ikemesit Effiong, partner and head of research at SBM Intelligence, said.
He added that the country should offer tax or regulatory incentives to organisations or companies that spend on those priority sectors. “We need to get creative in solving the problem.”
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.
According to Olamide Adeyeye, a Lagos-based human development researcher, Nigeria’s human capital strategy needs a major overhaul.
“The debts we are servicing cannot budget as much for education and health, making us lose the wealth and the future of the nation. So, we are consuming the present and future today,” he said.
He said the country must prioritise lifelong learning beyond traditional schooling, use the United Nations standards for minimum investments and tap into the private sector to ensure comprehensive and sustainable development.
Last December, the World Bank said amid the biggest surge in global interest rates in four decades, developing countries including Nigeria spent a record $443.5 billion to service their external public and publicly guaranteed debt in 2022.
It said the rise in borrowing costs had diverted scarce resources away from critical needs such as education, health, and the environment.
“Debt-service payments which include principal and interest increased by five percent over the previous year for all developing countries,” it added.