With a few days to the inauguration of new administration at the federal and state levels, the future of Nigeria’s bleak economy has attracted the attention of some economic experts. Latest interventions by experts on the economy came from the Director-General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala, and the Director-General of the Budget Office, Mr. Ben Akabueze.
Amid declining revenues, rising debt, unpaid teachers’ and other workers’ salaries, pensions, and outrageous pensions for outgoing governors, the WTO boss enjoined the governors to design new strategies to boost their Internally Generated Revenues (IGRs) and avoid over-reliance on borrowings. She spoke at the induction of newly elected and re-elected state governors held in Abuja recently.
On his part, Akabueze predicted: ‘Trouble is imminent’ as a result of Nigeria’s binge borrowing. According to him, Nigeria’s economy could be at the crossroads, with ‘limited borrowing space’ left due to its poor debt-to-revenue ratio. He issued the warning while addressing the members-elect of the 10th National Assembly. His warning came amid recent speculations that the government has sought for $800million loan from the World Bank. Nigeria’s revenue, Akabueze argued, ‘is too small to sustain the size of our debt,’ and stressed that once a country’s debt service ratio exceeds 30 per cent, that country is in trouble. For Dr. Okonjo-Iweala, a former Finance Minister and Coordinator for the Economy, the task of nation-building may be hard to realise if the state governors fail to diversify their economies, with particular emphasis on broadening their financial profile through IGRs, as revenue generation remains one of the critical elements that will help to enhance development at various levels.
Her challenge to state governors to periodically publish their IGRs and funds received from the Federation Account Allocation Committee (FAAC) as was the case during the previous administrations, is the proper thing to do. It will earn them the citizens’ trust, as well as keep the people abreast of their finances. In a democracy, the citizens must be informed about what their leaders are doing with the funds they receive monthly on their behalf. Unfortunately, the practice has been abandoned, with most of the state governors no longer answerable to the people.
Undoubtedly, the concerns expressed by the duo mirror some of the challenges facing the economy. The profligacy on the part of the governors may make economic growth and recovery hard to achieve. It is sad that despite the prevailing economic crunch, poverty and unemployment, some outgoing state governors have, through their respective Houses of Assembly, approved humongous statutory pensions and other entitlements for themselves and their families. Available statistics show that about 17 outgoing state governors are leaving behind a hefty N3.06trillion debt for their successors. Similarly, the outgoing administration at the federal level is bequeathing over N77trillion debt to the incoming government. According to WTO boss, Nigeria’s gross debt level has increased from N19.3 trillion in 2015 to N91.6trillion in 2023. Debt-to-GDP-ratio has almost doubled from 20 per cent to 39 per cent over that time period.
While that is apparently alarming as it relates to debt-to-GDP ratio, the same cannot be said of Nigeria’s debt-to-revenue ratio, a fact recently acknowledged by the DG, Debt Management Office (DMO), Patience Oniha. The aggregate budget of the 36 states for 2023 fiscal year is about N30trillion. It is less than 15 per cent in terms of ratio to GDP. This is lower than that of South Africa with 20 per cent, and even much lower than that of Morocco at 40 per cent. Therefore, cutting the cost of governance, increasing IGR without multiple taxes and prudent management of resources will help reduce the debt burden.
Currently, many states are walking on a tightrope due to debt overhang. Data from the DMO shows that Lagos State has the highest external debt of $1.27billion as of June 2022, followed by Kaduna State with $576.78 million, Edo and Cross River states with $268.3million and $215.7million, respectively. Jigawa State has the lowest debt profile of N56.59billion, which is less than one per cent of the total debt of the subnational governments.
It is likely that decades of operating budget deficits by successive governments and corruption are responsible for Nigeria’s high debt profile. A review of the country’s fiscal data shows that not only has the federal government operated budget deficits, most of the deficits have been funded through domestic and external borrowings.
According to the World Bank, Nigeria’s debt service-to-revenue ratio was alarming at 83.2 per cent in 2021, and 96.3 per cent in 2022. With much money used for debt servicing, there is little left to pay for recurrent expenditures, let alone investment in education, health, and others. For Nigeria to meet the IMF’s growth forecast of 3.2 per cent for 2023 and three per cent for next year, the incoming government needs to formulate good economic policies with specific timelines. Having seasoned technocrats in government will turn around the economy and ramp up growth.