Dark Shadows of Debt: Nigeria’s Terrifying Borrowing Spree Raises Concern Over The Country’s Future
The Federal Government’s decision to persist with borrowing funds despite the mounting and unsustainable debt burden in Nigeria has sparked apprehension among financial experts and key stakeholders.
As reported by Nigeria’s Debt Management Office, the country’s total public debt reached N87.38tn by the close of the second quarter of this year, signifying a 75.29 percent surge or N37.53tn from the N49.85tn recorded at the end of March 2023.
Further analysis of DMO data reveals that Nigeria’s total domestic debt stands at N54.13tn, while its external debt amounts to N33.25tn. Domestic debt constitutes 61.95 percent of the total debt, with external debt accounting for 38.05 percent.
The DMO’s 2022 Debt Sustainability Analysis Report has raised concerns, cautioning that the projected government revenue of N10tn for 2023 cannot sustain additional borrowings. The report highlights a high debt service-to-revenue ratio of 73.5 percent, deemed a threat to debt sustainability, given the existing revenue constraints.
Prominent figures in the financial sector, including Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, have voiced their concerns, emphasizing the urgency to reduce borrowing given the nation’s unsustainable debt situation.
Nevertheless, it was reported that the Federal Government is in discussions with the World Bank for a new $1.5bn loan designated as the ‘Nigeria Human Capital for Opportunities and Empowerment’ (HOPE). This loan is intended for improving basic education and primary health services in participating states and is scheduled for implementation in 2024, pending board approval. Additional loan projects are also under consideration.
Experts like Yusuf insist that any further borrowing should be targeted at capital projects with the potential to enhance economic productivity. They caution against borrowing to fund recurrent expenditures.
Dr. Sam Nzekwe, former President of the Association of National Accountants of Nigeria, raises concerns about the government’s ability to finance its commitments, particularly an additional N35,000 promised to civil servants, without a clear source of funding. He emphasizes that borrowing should be channeled toward capital development rather than recurrent expenditure.
The situation is further complicated by the non-functionality of Nigeria’s refineries, leading to heavy dependence on the importation of petroleum products. This has contributed to the nation’s need for substantial borrowing.
To mitigate excessive borrowing, experts like Mohammed Shuaibu, Secretary of the Independent Petroleum Marketers Association of Nigeria, advocate for the revitalization of the country’s refineries. This would not only save funds but also create jobs and reduce the strain on foreign exchange.
Chinedu Ukadike, National Public Relations Officer of IPMAN, underscores the necessity of addressing challenges in the oil sector to boost revenue and reduce the need for borrowing.
Despite challenges, experts acknowledge the volatility in the foreign exchange market and call for a sustainable intervention framework to manage forex supply limitations and stabilize market confidence.
In conclusion, the debate over borrowing in Nigeria continues to be a complex and crucial issue, as the government grapples with balancing its financial commitments while addressing economic challenges. The impact of borrowing, especially for recurrent expenditure, remains a contentious topic in the country’s financial landscape, and only time will reveal the consequences of these financial decisions.