A warning by the International Monetary Fund (IMF) that Nigeria among other sub-Saharan African countries should pay attention to their rising debt profile and diversify their economies to avoid another looming economic crisis should not be ignored by governing authorities in the country.
The incumbent administration has been especially fortunate to receive notes of caution from sundry international financial institutions (IFIs) regarding its preference to borrowing. This is intriguing because in the past, IFIs nudged distressed countries into more borrowing to the extent that they had their sovereignties undermined. As some have observed, the story behind lending is not altruistic neither is it based on enlightened self-interest.
Earlier in 2016, the African Development Bank (AfDB) warned African governments, including Nigeria to steer clear of international borrowing. It noted then that the current challenges of declining revenues, rising debt profile and expanding budget deficits were occasioned by gregarious external borrowing during the so-called boom years. On the heels of AfDB advice, the World Bank also sounded the alarm bells. Through its Vice President for Africa, Mr. Hafez Ghanem, it advised the Federal Government to cut its borrowing.
Beyond advice, these organisations have also pointed the way forward. AfDB, for instance, suggested that the continent facing a debt challenge needed fiscal consolidation while the World Bank recommended tapping private investments that would have domino effect on the economy. In addition, the IMF advised a growth-friendly fiscal focus, productive spending and effective domestic revenue mobilisation among others.
It would be recalled that pre-2006, Nigeria was indebted to the tune of about $35 billion externally and subjected to an excruciating routine of debt rescheduling, bourgeoning interest rates, hardnosed servicing and closed doors to new facilities. However, spike in oil prices internationally and resilient negotiation offered the country exit from the debt loop on Naples terms, which allowed the country to buy back its debts. That was in 2005.
Curiously, today, the country is back in the loop and cautions have been thrown to the winds. History often repeats itself when those who encountered it before refused to learn appropriate lessons. Nigeria’s external debt profile was $22.08 billion in June 30, 2018.
In March 2015, shortly before the present administration took over the reins of government, the country’s external debt stood at about $9.4 billion. Aggregate public debt was about $63.5 billion but it now hovers around $73.2 billion. This is frightening given the fragile nature of our economy. In the current mess, about two-thirds of the government’s revenues would go into debt servicing. In this respect, the government would require about $2.8 billion external loan to bridge the apparent fiscal deficit in the 2018 budget over which it has issued an over-subscribed Eurobond.
While many are worried about the country’s financial strait, state actors are inured. They resort to vague data and curious sophistry to underline the fact that the country is still within the safe belt of borrowing. They would argue that the country’s Debt-to-GDP ratio put at 21 per cent is within international threshold of 55 per cent. This amounts to walking on the path of illusion given the character of the Nigerian state elite who are not only disoriented but wasteful and unpatriotic. They lack integrity to manage any form of foreign loans. Our governance history supports this assertion about our power elite. Besides, the country is already in debt distress demonstrable by a resort to further borrowing to service existing debt obligation. This is a serious governance issue.
Without equivocation, we are not opposed to borrowing in principle. We have repeatedly stated here that it must be purposeful; it must be good money and due diligence must be followed. As some have correctly argued, borrowing is meaningful in circumstances in which its investment will produce a surplus for repayment and “self-sustaining economic growth.”
However, we are clearly opposed to the current administration’s borrowing binge. Borrowing to pay salaries and service over-bloated bureaucracy is the height of indiscretion. Indebtedness is a weapon of domination and would be wielded mercilessly to put the country where it belongs by powerful international players. With predatory elite in charge of the country’s affairs, the outlook is threatening to the country’s future. Debt servicing process, which takes over 50 per cent of accrued revenue, is clearly unacceptable. Where will funding for development of critical infrastructure flow from? Is it in the country’s interest to borrow to fund consumption of less than 5 per cent of the country’s over-bloated bureaucracy?
Truly, another debt overhang will undermine development and threaten peace and stability of the country. While the IMF has advised building of ‘fiscal buffers’ to reduce the current overhang, we strongly believe that fiscal federalism will unleash the country’s resources and productive capacity, and above all, wean it from its cycles of financial woes. This is the way governance can be meaningful to the people of Nigeria.
• This editorial first published on Wednesday, November 21, 2018 is repeated here because of its relevance to the nation’s debt crisis.
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