Nigeria is facing a financial crisis as its debt-to-GDP ratio surpasses the 50 per cent mark for the first time since 1991. The Bola Tinubu administration, which inherited a debt-to-GDP ratio of 38 per cent, has seen this figure balloon to 52.9 per cent. This significant increase is a result of fresh borrowings, the securitization of the Ways and Means advances, and an inability to address fiscal challenges such as low crude oil output amidst rising government expenditure and sluggish GDP growth. The current debt-to-GDP ratio significantly exceeds the prudential ceiling of 40 per cent recommended by the International Monetary Fund (IMF) for developing countries, raising questions about Nigeria's debt sustainability.
Historical Context and Current Situation
When Bola Tinubu assumed office, the debt-to-GDP ratio stood
at 38 per cent. This relatively manageable figure has escalated due to several
factors. The administration's new borrowings, combined with the securitization
of the Central Bank of Nigeria's Ways and Means advances, have contributed
significantly to the rise. Moreover, persistent fiscal challenges, including
reduced crude oil production and increasing government expenditures, have
exacerbated the situation.
According to the Debt Management Office (DMO), Nigeria's
public debt portfolio currently stands at N121 trillion. This comprises a
domestic debt of N65.6 trillion and a foreign debt portfolio of $42.1 billion,
equivalent to N56 trillion. The steep increase in the debt-to-GDP ratio poses a
severe threat to Nigeria's fiscal health, limiting the government's ability to
borrow further to finance the budget deficit and increasing the debt service
obligations substantially.
Comparative Analysis and Implications
Historically, Nigeria's finance managers have prided
themselves on maintaining a relatively low debt-to-GDP ratio compared to other
African countries. For instance, as of 2023, Ghana had a debt-to-GDP ratio of
84.9 per cent, South Africa 72.2 per cent, Kenya 70.1 per cent, and Egypt 95.8 per cent. However, Nigeria's recent spike to 52.9 per cent is a stark deviation
from its traditionally lower figures and poses significant challenges.
The rising debt-to-GDP ratio constrains Nigeria's ability to
secure additional loans needed to fund its budget deficit. The associated
increase in debt service obligations further exacerbates this issue. In 2023,
Nigeria spent N7.8 trillion on debt servicing, representing a 121 per cent increase from the N3.52 trillion spent in the previous year. Projections by PwC
indicate that Nigeria's debt service could rise to N8.25 trillion in 2024, N9.3
trillion in 2025, and N11.1 trillion in 2026. These escalating figures are
likely to affect Nigeria's debt servicing ability, credit rating outlook, and
borrowing costs.
Lessons from the Past
In 2005, Nigeria faced a similar unsustainable debt scenario
with a total revenue of around $9 billion and a debt portfolio of approximately
$36 billion. The administration of President Olusegun Obasanjo negotiated a
landmark deal with the Paris and London Club of Creditors, allowing Nigeria to
buy back about $30 billion of its $32 billion external debt through a one-time
cash payment of $12 billion. This deal provided Nigeria with a clean slate, but
the country's public debt has progressively risen since then.
Under President Muhammadu Buhari, public debt increased from
N12.6 trillion in 2015 to N97.3 trillion by 2023. The COVID-19 pandemic, a
double recession, and lower oil revenues were cited as reasons for the
increased borrowings during Buhari's tenure. However, the return to a high
debt-to-GDP ratio signals that Nigeria is once again on the brink of a debt
trap.
The Real Impact of Borrowing
Despite the significant increase in public debt, Nigerians
have seen little improvement in critical infrastructure. Rail and road networks
remain in poor condition, health and education facilities are underfunded and
deteriorating, and power supply is unreliable. Citizens often have to provide
essential services for themselves, highlighting the disconnect between borrowed
funds and tangible improvements in public services.
The primary beneficiaries of the borrowing spree appear to
be political officeholders and government employees, whose lavish lifestyles
are sustained by these funds. This misallocation of resources underscores the
need for more prudent financial management and accountability in government
spending.
Role of the National Assembly
The increasing debt-to-GDP ratio reflects poorly on the
National Assembly, which has failed to provide adequate oversight and control
over government borrowing and spending. Instead of curbing fiscal
irresponsibility, the National Assembly has allowed a regime of unchecked
borrowing, contributing to the current financial predicament. Effective
parliamentary oversight is crucial for monitoring the country's finances,
promoting accountability, and curbing wastage. Unfortunately, the Nigerian
legislature seems more focused on non-essential expenditures, such as the
acquisition of new presidential jets, rather than addressing the nation's
pressing fiscal challenges.
Recommendations for Sustainable Debt Management
To avoid sinking deeper into a debt trap, Nigeria needs to
adopt more prudent financial management practices. Several measures should be
taken to ensure the sustainability of the country's debt profile:
1.
Address Fiscal
Leakages: The government must tackle fiscal leakages such as oil
theft, contract inflation, outright looting, and the issue of 'ghost workers.'
These leakages significantly drain the nation's resources and exacerbate the
debt problem.
2.
Improve Revenue
Generation: Diversifying the economy and improving revenue generation
from non-oil sectors are critical. This will reduce the country's over-reliance
on oil revenues, which are subject to volatile global market conditions.
3.
Prudent Borrowing: The
government should adopt a more cautious approach to borrowing. Loans should be
tied to specific, revenue-generating projects that can repay the debt, rather
than being used to fund recurrent expenditures.
4.
Enhance Budget
Efficiency: There is a need to prioritize essential projects and cut
down on non-essential spending. This will ensure that borrowed funds are used
effectively to improve infrastructure and public services.
5.
Strengthen
Institutional Oversight: Strengthening
the role of institutions like the National Assembly in monitoring and
controlling government borrowing and spending is crucial. These institutions
must hold the executive accountable and ensure transparency in the management
of public funds.
6.
Debt Restructuring: Nigeria
may need to consider debt restructuring options to ease its debt burden.
Engaging with international creditors to negotiate more favourable terms could
provide some relief and create fiscal space for critical investments.
Conclusion
Nigeria's rising debt-to-GDP ratio is a significant cause
for concern, highlighting the urgent need for more sustainable debt management
practices. The current trajectory, marked by increasing borrowings and
escalating debt service obligations, is unsustainable and poses a severe threat
to the country's economic stability.
President Bola Tinubu administration must take decisive action to
address these fiscal challenges and ensure that Nigeria does not fall into
another debt trap. This requires a combination of prudent borrowing, improved
revenue generation, efficient budget management, and strengthened institutional
oversight.
As Nigeria navigates these financial challenges, the hope is
that more effective management of public resources will lead to tangible
improvements in infrastructure and public services. Achieving this goal is
essential for the country's socio-economic development and the well-being of
its citizens. #Tinubu #
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