Adedapo Adesanya
By Adedapo Adesanya
Nigeria’s debt profile has been a source of worry to many and recently, with the current reality in the global economy as a result of the coronavirus pandemic, which coincided with President Muhammadu Buhari’s request for an additional $22.7 billion external loan, there have fresh reservations on the capability of the country to incur more debts.
Recently, the Debt Management Office (DMO) warned that the country could not hold its own especially with the impact that the virus is having on the country’s economy, making it impossible to service the debts on ground.
According to analysts, the country’s poor revenue generation and annual budget deficit were compounding the debts, as the country has to borrow to balance the shortage which as at September 2019 stood at $26 trillion.
With the Senate approval of the loan after much deliberations earlier this month, the total debt of the country could rise to N33 trillion and this has worried the same Senate, which expressed its displeasure as the loans intended to help the economy are on track to land the country in a crisis.
As such, the Deputy Chairman of Senate Committee on Local and Foreign Debts, Mr Muhammad Bima Enagi, pointed this out while speaking at the one-day public lecture organized by the National Institute for Legislative and Democratic Studies (NILDS), on Public Debt in Nigeria: Trend sustainability and management.
“With the recent approval of the 2016-2018 External Borrowing Plan, the total debt stock would be about N33 trillion and 21 percent Debt to GDP ratio.
“What do we have to show as a people for these huge debts accumulated over the last four decades or so?” he asked.
“Clearly, Nigeria needs to get its public finance in order to avoid the potential fiscal and financial crisis ahead of the nation.
“The current debt situation in Nigeria needs to be properly managed and every borrowed Naira or Dollar, carefully deployed, especially in the face of the continued dependence of the nation’s economy on exported crude oil, with its usual price volatility.
“Borrowings must be project-tied and not just to support budget deficit. Furthermore, the projects must be such to grow the economy and bequeath laudable infrastructure and not debt for future generations,” he had further said.
DMO’s Director-General, Ms Patience Oniha, has, however, called for calm, saying despite these worries, there was no cause for alarm.
She explained that in order to ensure that the public debt was sustainable, the Debt-to-GDP Ratio was set at 25 percent, lower than the 56 percent advised by the World Bank and IMF, adding that the total public debt-to-GDP had remained within the 25 percent limit, standing at 18.47 percent in September 2019.
“This is, however, only one measure of debt sustainability, the other equally important measure is the debt service-to-revenue ratio and this is where Nigeria needs significant improvement.
‘’Actual Debt Service to Revenue Ratio has been high at over 50 percent since 2015, although it dropped to 51 percent in 2018 from 57 percent in 2017.
“The relatively high Debt Service to Revenue Ratio is the result of lower revenues and higher debt service figures.”
But the pertinent question remains on the lips of many, considering the realities on ground with oil prices pointing south: can Nigeria sustain the debt?
Mrs Oniha noted: “Whilst Nigeria’s debt is sustainable, recent developments in the global environment induced by COVID-19, already suggest a less than favourable economic outlook with implications for Nigeria.”
This week, Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, announced the federal government has suspended its plans to do the $22.7 billion external borrowing. The House of Representatives is yet to approve the request, only the Senate has.
