As the days morph into weeks and weeks into months, the world is moving and changing at such a rate that many new issues are cropping up daily. One of the major concerns is the rising number of concerns around the quality of life in general, deteriorating living standard and increasing rate at which public debt is accumulated, particularly, in emerging economies like Nigeria.
Before the emergence of the health crisis coded COVID-19 that almost silenced the global economic activities, susceptibility to debt problems had been building in many emerging and frontier countries. Although, the issue of debt varies significantly across countries, nevertheless, it covers or extends over an area of worsening fiscal finance, especially, since the decline in international commodities prices, such as crude oil, has further made the revenue generation capacities of African countries precarious.
Nigeria, like other countries around the world, is contending with an unprecedented shock arising from the crash in crude oil prices, coronavirus pandemic and shrinking external buffers. And again, the country is facing deep economic crisis at all levels – health economic and its social institutions are already overwhelmed and corruption is hitting at its peak.
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The coronavirus pandemic hits Nigeria at a time the country is struggling with unsustainable debt burdens as well as the rising health and economic needs. Nigeria in April announced it would raise $6.9 billion from multilateral lenders to help curtail the spread of the coronavirus and to deal with the adverse impact of the virus on the people’s livelihoods.
It was a move which was set to exert pressure on the already increased debt portfolio and this is happening as at the time when tax revenue is shrinking, export earnings are falling at an increasing rate and diaspora remittances are drying up.
To get the full impact of the unfolding scenario, an analysis of the debt data was done from the data extracted by BusinessDay Research and Intelligence (BRIU) from the National Bureau of Statistics (NBS). The Nigerian states and the federal debt stock data as at 31st March 2020 indicated that the country total public debt portfolio (consisting of external and domestic debts) stood at N28.63 trillion. Further disaggregation of the Nigeria total public debt showed that N9.99 trillion or 34.89 per cent of the debt was external while N18.64 trillion or 65.11 per cent of the debt was domestic.
Few months earlier, as at 31st December 2019, the country’s total public debt portfolio stood at N27.40 trillion, comprising N9.02 trillion or 31.55 per cent of the debt as external debt while N18.37 trillion or 67.07 per cent of the debt was domestic. A year earlier, that is, as at 31st December 2018, the country foreign and domestic debts stood at $25.27 billion and N16.63 trillion made up of $11.01 billion of the debt as multilateral; $344.63 million was bilateral (AFD) and another $2.75 billion bilateral from the Exim Bank of China, Japan International Cooperation Agency (JICA), India and KFW, German state-owned development bank while $11.17 billion was commercial which are from Eurobonds and Diaspora Bonds.
In the same magnitude, borrowing spree is not limited to Nigeria as in the last few months since the confirmation of the index cases, Sub-saharan African countries have borrowed at least $ 10,636.85 million in new loans.
Before the coronavirus pandemic, African governments already burdened with high debt level. Kenya’s total debt was way above the $60 billion regional marks (more than 60 per cent of gross domestic) while Uganda’s total public debt stock as of January 2020 stood at $13 billion, about 36.5 per cent of GDP.
Rwanda, on the other hand, borrowed $109.4 million from the IMF to ease foreign exchange pressures with an additional $11 million in debt service relief under a special programme for six months; $14.25 million from the International Development Association for its Covid-19 emergency response arsenal, and $100 million from the World Bank for budget support, with the further expectation to borrow from the African Development Bank.
IMF Executive Board approved a $125 million disbursement under Benin’s Ecf-supported Arrangement to address the urgent financing needs stemming from the spread of COVID-19 and to mitigate its economic and social impacts. Burkina Faso was not left out. The pandemic took a major toll on its economy, with the near-term outlook deteriorating speedily. It got an approved Rapid Credit Facility (RCF) to a tune of $115.3 million.
Like many countries around the globe, Cabo Verde’s economy is significantly affected by the COVID-19 pandemic, and to weather the effect of the pandemic on the economy, the IMF approved financial assistance for Cabo Verde to the tune of US$32 million under the Rapid Credit Facility.
On April 13, 2020, the IMF Executive Board approved the disbursement of US$1 billion to Ghana to address the COVID-19 pandemic and to be drawn under the Rapid Credit Facility.
Nigeria, on the other, is the biggest recipient of the IMF emergency credit facility so far. The country secured $3.4 billion under the Rapid Credit Financing Instrument. The government is talking with the World Bank for $2.5 billion loans and a further $1 billion loan from the African Development Bank.
Impact of COVID-19 on African countries vis-à-vis China
Africa continent is faced with a twin blow since the outbreak of the novel coronavirus pandemic – health and economic crisis. Nigeria and other countries alike initiated measures to protect the health of the citizens and to weather the further impact of the pandemic on the economic stability as at the time where they are burdened with their debt. Debt servicing has become a major impediment, some even borrow more for debt repayment leaving them with slim chances to divert the scarce resources towards more pressing health and economic needs.
Many take solace in China loans, and findings show that China is largely Africa’s bilateral creditor. The Chinese government, banks and state-owned enterprises are estimated to hold 17 per cent 24 per cent of Africa’s external debt.
Conversely, a default in payment comes with a negative economic implication, regardless of the origin of the loans. Going forward, it will be harder to borrow and they could face broader negative repercussions on their economies.
