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Government’s misleading debt narrative and N24.4 trillion challenge

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Finance Minister, Zainab Shamsuna Ahmed

The rate at which government officials go about telling Nigerians that there is no debt crisis, even with mounting evidence of incremental stock of obligations, now at N24.4 trillion, along with huge debt service bill and the concomitant effects on the national revenue, calls to question the leadership sincerity, its capacity to save the country from imminent pre-2005 debt dilemma and next generation’s future.

Nigeria’s Minister of Finance, Mrs. Zainab Ahmed, was the first to advance the contradictory debt narrative of “No Debt Crisis, But Revenue Crisis”, as her approach to fend off fearful realities that confound the economy.

Since then, she has not only repeated that same line, but influenced others to chorus it, irrespective of the inherent distortion.

The mindset adopted by the officials only sees debt crisis as a situation where government cannot pay anymore. That is fundamentally wrong, especially when the ability to service the debt is impaired so much that the economy is now deprived of a fiscal space.

The Vice President in a town hall meeting in Abuja, last year, followed that same line. The Minister of Budget and National Planning, Udoma Udoma, has also chorused it severally. It is also on record that the Director-General of the Budget Office of the Federation, Ben Akabueze, dispelled all the mounting evidences to support the theory.

Besides, government has been up in arms, “harassing” Nigerians and corporates, who eke out a living and contribute to economic development under assessed difficulties, with various taxes and inquests. Of course, everybody owes it as a duty to pay tax.

But till now, the same government is yet to make clear or conduct inquest into the tax compliance statuses of thousands of politically exposed persons around the corridors of power- from council to federal levels. It is also yet to pursue tax on luxury goods to logical point.

However, it wants to raise more revenue from tax to shore up the internationally acclaimed revenue crisis that has eaten deep into its sovereign rating, with previous arrangements that have fallen below expectations.

Living in denial of the nation’s ongoing fiscal crisis and the soon to come escalated headwinds against the economy, for whatever reason, cannot erase the ugly realities nor spur the long-sought growth fundamentals, that have been altered since 2016.

The truth is that the economy is in dire need of strategy and an effective one, to bail it out of the current quagmire.

Nigeria may not be the only one in Africa with debt exposure, as the continent’s eurobond debt exceeded a $100 billion mark. In 2018, African economies, including Nigeria, issued a record $27.1 billion Eurobond. Already, in 2019, Egypt, Ghana and Benin have raised $7.6 billion debt. Nigeria, again, has planned in the budget proposal to go later this year.

Yinka Adegoke of Quartz Africa, noted that analysts at Brookings said that the size of debt is not the worry, but the “unsettling” rapid rate of increase in debt, the rising debt servicing costs and the nature of the debt structure relative to the “highly indebted nations” years. Nigeria is also part of this.

“The bigger challenges for African countries are to do with the debt service costs and the repayment risks… Many of the 21 eurobond issuing countries are borrowing like middle-income countries, but are not yet collecting revenue like one,” he said.
Again, Nigeria is one of these.

The country’s total debt stock, according to the Debt Management Office (DMO), rose to N24.387 trillion ($79. 437 billion) at the end of 2018, representing N2.7 trillion increase from N21.725 trillion at end of 2017.

The path to the new profile has been consistently upward since 2014, when the debt stock was N12.1 trillion. It moved to N12.6 trillion in 2015 and a quantum leap of more than N4trillion to N17.36 trillion in 2016. Also, in 2017, it took another significant leap of N5trillion to settle at N22.37 trillion.

It has been an unsavoury trend for debt service bill too. An economist and research analyst, Ayodele Akinwunmi, noted that except in 2015, when domestic debt service bill relative to revenue was 38 per cent, other years have consumed more than half of government’s earnings- 2016, 58 per cent; 2017, 57 per cent; and 2018, 52 per cent.

The worse was that government’s earning power has flattened significantly during these years, with 2016 topping the poor records. The retained revenue plan for 2017 fiscal year performed less too at about 52.27 per cent at N2.65 trillion.

In 2018, according to Udoma, the retained revenue target of N7.17 trillion, returned less than N4trillion, representing about 55 per cent. Given these, are the country’s debt plan and the economy not seriously challenged?

An economist, Ucha Nwagbo, said the country has always opted for homegrown policy, especially given our peculiar environment, querying why such has not applied in this debts saga.

“It’s surprising that the so-called economic managers have held on to the ‘theoretical’ international debt threshold to deceive those that are not aware. Threshold does not pay debt nor does it determine ability.

“It is hypocritical to dish out half-truth to Nigerians with the narrative that there is no debt crisis. When you use more than half of your revenue to service debts and borrow more to meet up your normal activities, you are only increasing the debt stock, as well as the service bill.

“The provision in 2018 budget was N2.01 trillion and in 2019, it is over N2.3 trillion. Who is now deceiving who?” he queries.
An economist at the Abuja-based Centre for Social Justice, Fidelis Onyejegbu, said his issues with Nigeria’s debt is all about sustainability, as it seems to be increasing with no clear thoughts on how these debts would be repaid.

“DMO’s 2016 Debt Sustainability Analysis (DSA) reported that although the nation’s debt position is sustainable, it experienced some deterioration and had slipped from a low-risk of debt distress to a moderate-risk of debt distress. The 2017 DSA also maintained the same remark.

“The proposed 2019 federal budget represents the first time that debt service (both servicing and sinking fund) would be higher than the capital expenditure at the proposal level; while the former is 25.65%, the latter is 23.02%, 2.63% being the margin.

“Instead of growing the debt profile, government should focus on increasing public private partnerships through well prepared projects, involving the MDAs, the Infrastructure Concession Regulatory Commission and the private sector,” he said.

But Akinwunmi added that the low revenue generating capacity of the country, which translates to high interest expenses on domestic debt-to-revenue ratio for government is a cause for worry.

“While I do not envisage any escalated fiscal crisis, it is important to emphasise that the interest expenses of the government on domestic debt relative to revenue is unsustainably high at 52% as at 2018 (57% in 2017). Government must adopt additional measures to increase revenue to reduce its loan service burden,” he said.

The Executive Director of OJA Development Consult, Jide Ojo, said that as much as borrowing is not a bad thing, there is need to define explicitly what the borrowing is for.

He said that though Nigeria’s debt-to-GDP may be within the range recommended by international financial institutions as a country, when our debt-to-revenue ratio is not sustainable, borrowing more becomes a problem.

“The country’s annual debt servicing cost is mind-boggling. With these mindless debts, the future of our children has already been mortgaged. There are wastages in our governance system.

“For so long, we have been talking of diversification, but this has to be taken seriously and pursued vigorously. Government at all levels still sponsor people on pilgrimages and have a high running cost for entertainment and welfare.

Even governors still charter flights when they should be on commercial flights. There is still needless appointment of high number of aides and unnecessary trips around the world in the name of searching for foreign investors, which do not materialise.

“They are all part of the drain. There is need to plug these revenue leakages and make the people’s money work for them. For now, much is borrowed and wasted,” he said.


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