NIGERIA’S negative economic outlook is worsening. Its troubled economy is entering more uncertain times as the national debt has spiraled to N12 trillion ($65 billion). This is almost N1 trillion higher than the N11.24trn figure for 2015. The N12trn, made up of both external and domestic debts, is 13 percent of the nation’s Gross Domestic Product (GDP).
The Director-General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, disclosed this figure at a recent seminar on Debt Sustainability and the Challenge of Financing Economic Recovery, organised by the agency for the Nigerian Union of Journalists (NUJ). He explained that domestic debt constitutes about 86 per cent of the N12trn owed by the states and the Federal Government, while external debt makes up the remaining 14 percent.
Also, the debt owed by the 36 states and the Federal Capital Territory constitutes 33 percent of the external debt and 16 percent of the total domestic debt, while the Federal Government accounts for the balance. Although the DMO has again assured us that Nigeria “is not at risk”, and that there is still no “cause for alarm”, this assurance is not reassuring enough.
On the contrary, the continuing increase in the nation’s indebtedness is troubling. If not properly managed, the skyrocketing debt portends an even gloomier future for our ailing economy. This is in view of the borrowing pattern of the states and the Federal Government.
For instance, in the 2016 Budget, the Federal Government plans to borrow N900 billion externally and N984 billion internally. It is worrisome that Nigeria’s debt is rising at this time that the managers of the economy should be trying to keep it in check. Even though the debt ratio to GDP is still within the acceptable international threshold, our worry is that the culture of fiscal frugality and discipline has not taken root at all levels of government in the country. This is what is responsible for the spiraling of our indebtedness in the last three years.
For instance, in its 2013 Annual National Debt Sustainability Analysis report, the DMO said Nigeria’s total public debt had risen from N6.25trn ($40.1bn) in 2010 to N9.04trn ($58.04bn) by the end of 2012. The figure for 2012 is N1.3trn higher than that of 2011.
Compared with the current N12trn debt, the implication is that both the federal and state governments have been borrowing so much with little to show for the credit facilities taken. The present debt stock is disturbing. Nigeria is indebted to key multilateral financial institutions. These include the World Bank, African Development Bank (AfDB), Exim Bank of China, the French Development Agency and the Eurobond. As at the end of 2014, Nigeria’s total indebtedness to these credit institutions stood at N1.63trn, which is over 35 percent of the 2016 national budget.
As we have previously cautioned, there is nothing really bad in borrowing, if the loans are judiciously utilised. Sadly, borrowings by governments in Nigeria have not yielded the desired objectives. Our huge debts have not resulted in improved welfare for the people or any remarkable infrastructural development. Although government has often argued that our loans still fall within the permissible threshold, they have not had the desired impact on the productive sectors of the economy.
The latest debt figure should be seen as a warning for all levels of government to be prudent in the management of their loans, whether taken internally or externally. According to the DMO, the four most heavily indebted states are Lagos, Kaduna, Cross River and Ogun, with each having taken over $100 million external loan. These four states and Oyo account for about 51 percent of the 36 states’ total external debt, with Lagos State at the top of the list.
However, the good news for Lagos State is that it has the financial muscle to repay its $1.087bn credit facilities because of its high Internally Generated Revenue (IGR). The same cannot be said of most of the other states, which is why many of them are currently debt-ridden and unable to discharge their financial obligations to their workers and contractors.
Looking forward, one of the lessons in the national debt profile released by the DMO is for all tiers of government to be prudent. Loans taken must be tied to specific projects and closely monitored. The states should also adhere to the three percent ceiling in relation to their total annual revenue, as required by the Fiscal Responsibility Commission (FRC) Act. Hitherto, many states spend more than their earnings can sustain. In that respect, there is need to amend the FRC Act 2007. This is necessary to give the commission more powers to monitor how states utilise the loans they take in order to ensure accountability and transparency.
Coming at this time that the nation’s economy is in the woods, Nigeria’s debts should be kept in check. Let all levels of government in the country reappraise their financial profile, avoid over-borrowing and ensure prudent management of their resources. The time has come for them to prioritise their projects and plug all leakages in their finances in keeping with the nation’s present economic realities.