N25tn debt profile: Further borrowing’ll hurt economy, experts warn FG

Everest Amaefule, Ifeanyi Onuba, Femi Asu, Feyisayo Popoola and Ademola Babalola

Contrary to the stand of the Federal Government that the nation only has revenue challenge and not debt problem, economists and experts have said that the country has a huge debt burden.

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, had at a meeting with the members of staff of the ministry on Monday said that Nigeria did not have any debt challenge but a challenge with generating sufficient revenue.

The minister decried what she described as ‘insensitivity’ concerning the debt situation in the country, preferring that attention should rather be focused on revenue generation rather than debt.

However, in separate interviews with our correspondents on Thursday, experts, including a professor of economics at the Olabisi Onabanjo University Ago-Iwoye, Ogun State, Sheriffdeen Tella, and the Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr Bismarck Rewane,  said that there was the need to be concerned about the nation’s debt situation.

We shouldn’t accumulate more debt, says Tella

Tella, who insisted that the country had a debt problem, said with the Federal Government spending about 20 per cent of its budget size to service debt, it was practically impossible for Nigeria not to be having a debt problem.

He called on the government to discontinue borrowing in order to avoid a situation where a huge chunk of the country’s annual budget was spent on debt servicing.

Tella said, “We have a debt problem because when you have problem with debt servicing, then you have a serious debt problem.

“Currently, what we are still doing is debt servicing using a huge proportion of the annual budget to pay debt. That is serious because the money that you would have used for other things is now being used to pay debt.

“So, we have problem with debt really. The debt is still mounting and the servicing that we are doing is quite huge. We are using over 20 per cent of our budget to service debt.

“I don’t know what they meant by saying we have no problem with our debt. We have a very serious problem with debt. We should not even accumulate further debt beyond what we currently owe.”

Also speaking, a former Director General, Abuja Chamber of Commerce and Industry, Mr Chijioke Ekechukwu, said the rising debt portended danger for the economy.

He said, “It is expected that the debt profile of the country would rise considering the fact that we have a deficit budget and even the deficit side of the budget was not met in the last budget year.

“The government would need to continue to borrow to meet the increased size of the deficit.

“Of course, the borrowing portends danger for the economy because our debt profile is rising and we do not know when we are going to scale it down.”

He said rather than continue to rely on borrowing to finance its activities, the Federal Government should adopt other sources of funding the infrastructure needs of the country such as concessioning, privatisation, and Public Private Partnership arrangement.

Don’t borrow for consumption, borrow  to invest –Rewane

Rewane, on the other hand, said what the debts were used for would determine whether they would help or hurt the nation’s economy.

He said, “If the debts are there, and you have roads, rail tracks and power stations; then there is no problem because the power generated, for example, will give you output that you will use to service the debt. The question we need to ask is: what were the debts used to do and are the debts increasing productivity in the country?

“We are facing a situation where oil revenues are going to be declining, your population is growing, the needs are there and you need to be competitive. So, you need investment, and the only way you can get investment is when investors are confident.”

He said governments could borrow as much as they would use the money “to do things that can increase productivity.”

“Do not borrow money if you are going to be using it for consumption; borrow to invest. For example, you borrow to build a rail track and then you concession the rail track for companies to come and run it, then the proceeds from that can be used to build a road, power station or an airport. That is the way to go,” Rewane added.

However, an international investment and business consultant, Dr Vincent Nwani, who gave analysis of the nation’s debt burden and the lacklustre economic status of the country, said that the national Gross Domestic Product growth rate at the moment was too weak.

He spoke on Thursday in Ibadan, at the First City Monument Bank South-West region media parley tagged; ‘Nigeria in 2019: low growth versus rising risks advised against further borrowing.

Though Nwani argued that borrowing for developmental projects was not bad, he added that the effect of borrowing on the masses was the concern of the nation’s economic experts.

According to him, Nigerians were feeling the effect of world currencies’ crashes and slow global trade growth put at 0.5 per cent in the first quarter of the year.

He blamed sleepy economic performance of the country on the challenges of insecurity facing the country, poor policies of the government, and poor tax collection in Nigeria.

He said, “In 2015, our external debt was N12.1tn but before the end of 2018, it rose to N24.3tn. I know it is never a crime to borrow money, but you must know what you are doing with the money you are borrowing.

“Today, no concrete project is going on in the country and we keep borrowing money. Today, our GDP growth rate is 2.5 per cent but it was above five per cent few years ago. This is very weak for a country like Nigeria.

“You media men need to challenge the government on the new policy on loan for importation of food, especially milk. If you raise money to import without going through the CBN, when you get to the port of entry, you will have problems.”

Borrowing will endanger 2019 budget implementation, says Nwokoma

But a professor of economics at the University of Lagos, Ndubuisi Nwokoma, said the problem of the country was both debt and revenue.

He said, “I say revenue is a problem because the key indicators that determine our revenue are threatened. The price of oil and production are threatened.

“If you look at the structure of the 2019 budget, we can see that about 52 per cent of our revenue is expected to come from the oil sector. So, if there is a problem with that oil sector, it affects drastically the revenue of the country.

“Currently, revenue is a problem. But we cannot say that debt is not a problem, because that is a greater problem.”

Nwokoma stated that when a country borrowed beyond a particular limit, it caused problem.

He said there was a need for the country to take a look at its revenue before borrowing.

According to him, the current debt servicing to revenue ratio of the country is very high.

Nwokoma said, “You borrow bearing in mind the level of your revenue; so, our revenue level must be able to match our borrowing, which makes both a problem.

“This government has put the country in a tight debt situation, and we need to check it. It means that further borrowing will endanger current budget implementation because for every N100 we make, we spend about N50 on debt servicing.

“This means our children will have to pay back the capital and for now, we don’t even have enough outlay to be able to address the budget.”

Nwokoma stated that the government was overborrowing, stressing the need to enhance policies that would attract foreign capital and make Nigerians invest in their own economy.

Meanwhile, statistics from the Debt Management Office showed that the country’s total debt stood at N24.95tn as of March 31, rising from N19.16tn as of March 31, 2017.

This means that within a period of two years, the country’s total debt rose by N5.79tn. It also means that within a period of two years, the country’s debt profile rose by 30.22 per cent.

Out of the total debt profile, external debt accounted for N7.81tn ($25.61bn). In percentage terms, external debt accounted for 31.51 per cent of the country’s total debt portfolio.

On the other hand, total domestic debt amounted to N17.07tn. This means that the domestic debt accounted for 68.41 per cent of the total debt portfolio.

The Federal Government’s component of the domestic debt accounted for N13.11tn while the sub national governments accounted for N3.97tn.

Thus, the Federal Government accounted for 76.8 per cent of the nation’s domestic debt profile while the 36 states and the Federal Capital Territory accounted for 23.2 per cent of the domestic debt portfolio.

Servicing of domestic debt cost the Federal Government N5.53tn in the last four years.

The cost of servicing government’s debt in the four-year period from January 2015 to December 2018 had been on the increase with each passing year.

DMO statistics showed that the Federal Government spent N1.02tn on servicing domestic debt in 2015.

The following year, the cost of servicing the Federal Government’s debt rose to N1.23tn. It increased further to N1.48tn in 2017 and peaked at N1.8tn in 2018.

The increasing amount spent on debt servicing reflects both increasing cost of debt as well as the increasing debt profile of the country as government at all levels had resorted to borrowing in order to complement dwindling revenues.

On the other hand, the country spent a total of $2.62bn on servicing external debt between 2015 and 2018.