Halt Nigeria’s rising debt profile

Across the developing world, particularly in sub Saharan Africa, the economies of these countries have been marked by significant vulnerabilities in recent times due to uncertainties in commodity prices and consequent fiscal deficits. Hence most of these developing economies have over these years resorted to fiscal stimulus to sustain macroeconomic stability and economic growth.

However, the prolonged state of the uncertainties and the accumulation of the deficits and public debt have limited the continuing usefulness of these fiscal stimuli. This has been part of the narrative for the accumulation of public debt by countries in sub Saharan Africa in recent times.

In Nigeria, Africa’s largest economy, the current state of affairs, of a growing public debt profile is scary, particularly since 2015 when the Muhammadu Buhari administration came into power. According to the Debt Management Office (DMO), Nigeria’s total debt has increased by about 90% in almost three years from about N12.6 trillion in December 2015 to about N22.71 trillion as at March 2018. The DMO figure indicates that total public debt prior to the 2018 budget stood at about N21.17 trillion. With the N1.95 trillion budget deficit of the 2018 budget and the $475 million loan agreement recently signed with the French government, following the recent visit of the French President, Emmanuel Macron, total debt will stand at about N23.645 trillion with debt service likely to increase beyond the N2 trillion provision in the budget.

In a recent statement by the DMO on Nigeria’s debt situation, “…the total public debt which encompasses the domestic and external debt stock of the federal and 36 state governments and the Federal Capital Territory, stood at N22.38 trillion or $73.21 billion as of June 30, 2018…a marginal increase of 3.01 per cent over the public debt stock for December 2017…”. This is indeed scary.

The rationale for the increasing public debt profile, as stated recently by the Director-General of the DMO, Patience Oniha, appears suspect. Her argument that government wouldn’t have been able to function over the past three years of the Buhari administration without piling up debt, does not appear sustainable. It can be recalled that the new government, on coming to power in 2015, met funds from which it gave bailout to the states to pay salaries. There were dividends from the Bonny LNG as well as some funds in the excess crude account.

And so if the government actually met an empty treasury, as is being widely orchestrated, from where then did government obtain funds to grant bailout to the states? The government could have hit the ground running and liberalised the economy on assumption of office with the available resources. That action would have also widened economic opportunities, with the expected positive impact on increased taxation. But that was not the case. It took close to six months for a new cabinet to be put in place, before a budget could be prepared. This curious executive procrastination created room for anomie and uncertainty in the economy, with the consequent negative impact on capital inflow and macroeconomic stability.

Yes, the price of crude oil was low, yet that could have turned out to be an opportunity, instead of a threat, to install a new “change” environment for the enhancement of a new trajectory for the Nigerian economy. Besides, that would have been an opportunity for a national reorientation on frugality, investment and restructuring of the over-bloated and wasteful bureaucracy.

These notwithstanding, the new government enforced the Stamp Duties Act Cap. 441 LFN, 1990, in the collection of varying amounts on deposits in deposit money banks with huge amounts of money coming into government coffers over the period. The Federal Inland Revenue Service (FIRS) in the past three years has been very aggressive in tax collection, so also is the Customs and Excise Department. They have declared good returns to government coffers and even praised themselves. In the same vein, the price of crude has been increasing over the period, standing at over $80 per barrel at present. These should have been able to run the government successfully, contrary to the claims of the government through the Director-General of the DMO.

Truly, some measure of borrowing could have been permissive, given the state of the economy in 2015 but not to the clearly humongous level it has turned out to be. The government has taken pubic indebtedness to a critical level in the past three years, particularly with the unsavoury inter-generational debt service implications for the country’s economic survival.

It is also curious that government has claimed that the debts incurred over the period are largely budget-support, to particularly finance capital expenditure. But the experience of the past three years does not tend to confirm this situation. The much-celebrated 30 per cent of total expenditures set for capital expenditures in the 2016 and 2017 budgets were hardly attained. Actual spending has generally been in the region of about 50% of the budget provision in the past two budgets.

For example, the actual capital spending in 2016 and 2017 respectively were N1.2 trillion and N1.54 trillion as against the budget values of N1.8 trillion and N2.17 trillion. This raises a serious concern about the use of the borrowings to finance the budget when physical infrastructure generally remains in a parlous state and not increasing in the same proportion as the growth of the borrowings. While the capital expenditures have underperformed, the recurrent expenditures have exceeded their budget targets in the past two budgets. It is amazing why this has not been a source of constant worries to the government and even the representatives of the people, notably the federal legislature.

Is it not thus suggestive that the borrowings, directly or indirectly, are financing recurrent expenditure? This appears particularly so, for domestic fuel consumption, where there is a wide gap between the pump price of petroleum spirit of N145 and the landing cost of N171. This is, as alluded to, by the Minister of State for Petroleum, Ibe Kachikwu. The impact of all these on the overall economy is not reassuring. This is scary and disruptive.

Government needs to be cautious in growing the national public debt. In as much the effort to rebalance the debt away from domestic debt to external debt is commendable; the critical focus should be on getting value for money for every dollar or naira borrowed. Borrowing should not be incurred to finance consumption and the tempo of the borrowing should, as a matter of urgency be reduced.

Government should build strong financial buffers, through enhanced savings of the revenue implications of the difference in the 2018 and other years’ budget benchmark oil price and the market price, among others. The revenue to debt service ratio should be closely monitored to avoid a situation of debt overhang on the economy. Otherwise, the current debt policy stance could take Nigeria back to the years of an unsustainable debt burden where it would, similar to the experience of the past, be begging across the world capitals for another debt forgiveness. That would not be a good testimonial for the Buhari administration, barely nine months to the end of its tenure.