Debt is sinking the economy

A multi-trillion naira debt servicing plan, accompanied by yet another $8.32 billion borrowing request tamely approved by the Senate, has reignited widespread alarm over the Federal Government’s borrowing binge.

The provision to spend N14.6 trillion on debt repayment in three years under the Medium-Term Expenditure Framework and Fiscal Strategy Paper 2022-24 comes amid rising debt servicing obligations that swallow 97 per cent of all revenues and increasing recourse to even more loans to meet recurrent expenditure.

Experts say empirical evidence overwhelmingly supports the view that a large amount of government debt hurts economic growth potential, and in many cases that impact gets more pronounced as debt increases.

Despite this, the government has been recklessly piling up a mountain of debt, external and domestic, that experts fear may sink the economy if not checked.

The MTEF/FSP report envisages spending N3.6 trillion on servicing debts in 2022, N4.9 trillion in 2023 and N6.1 trillion in 2024. Consistently, national budgets since the country’s deliverance from three decades of peonage via the landmark debt buy-back scheme of 2005/6 have been characterised by deficits, borrowing, and precedence of recurrent over capital expenditure.

The repercussions have been devastating, including poverty levels now at 70 per cent, unemployment 33.3 per cent, and inadequate infrastructure.The dangerous trajectory of the debts has manifested in a spike in the debt service-to-revenue ratio.

Debt servicing consumed most of the government revenues in 2020: BudgIT, a civic-tech non-profit, said the N3.34 trillion spent on debt servicing out of a total N3.42 trillion revenue translates to N97 spent on creditors out of every N100 earned.

The trend persisted in the first five months of 2021. Nigeria’s position is doubly precarious. Revenue earned in 2020 was only 63.71 per cent of the N5.37 trillion projected, meaning, said BudgIT, that “all the Federal Government’s salaries, overhead and capital expenditures were funded with loans and Central Bank of Nigeria support.”

The apex bank’s support sometimes comes with inflation-fuelling infusions of foreign exchange and ‘Ways and Means’ (read printing money). Unerringly, the government’s carelessness has boomeranged. Like its predecessor, the Buhari regime’s smug solace in the country’s once relatively low debt-to-GDP ratio has backfired.

Now, high debt servicing-to-revenue ratio crowds out spending on capital projects. The country is slipping into a more debilitating debt trap than the last one. Unwisely, Nigeria began to pile up debts shortly after exiting the Paris Club and London Club peonage in 2005/6.

Between June 31, 2010, and June 31, 2015, the Goodluck Jonathan government raised external debts from $4.26 billion to $10.31 billion; total public debt (domestic inclusive) was $63.8 billion.

Surpassing all its predecessors in volume and rapidity, the Buhari regime raised external debt from the $10.31 billion it inherited as per Debt Management Office figures, to $32.85 billion by March 31, this year and total public debt to $87.23 billion.

It is time to deploy greater rationality into debt acquisition and management. Debt is not evil. Indeed, all economies use creative debt policies to drive production, critical infrastructure, short and long-term fiscal stability and fund social services like education, health, and sanitation.

Research by Mexico’s Centre for Economic Studies confirmed: “At low levels of indebtedness, an increase in the proportion of external public debt-to-GDP would promote economic growth; however, levels of indebtedness and the increase would hurt economic growth.”

When deployed in long-term development projects, critical infrastructure like power, highways and agriculture, dams and social services, loans help to boost productivity, job creation and revenues.

The World Economic Forum asserts that debt was crucial to England’s industrial revolution, post-war Germany’s and the Asian economic miracles of the 20th century.

But Nigeria gets it all wrong. For one, it borrows to fund projects with none or little prospects of generating funds. It compounds this by borrowing for projects that are better left to private investors. Disastrously, it borrows to pay salaries and fund the opulent lifestyle of elected and appointed officials.

Consequently, debt as a percentage of GDP rose from 23.41 per cent to 35.05 per cent, said Statista. Worse has been the astronomical rise in debt servicing-to-revenue ratio in an era where oil production levels and earnings, the country’s mainstay, are dwindling and where the COVID-19 pandemic now in its third wave, has constricted the global economy, compelling frenzied borrowing worldwide. ICSAN seeks better management of Nigeria’s rising debt.

Nigeria back to the debt trap! At the current pace, borrowing will crush the economy. The federal and state governments should stop borrowing to fund consumption. Debt servicing, as earlier predicted by the World Bank/IMF, is crowding out investment in infrastructure. In 2020, while N4.65 trillion was spent on recurrent expenditure, the N2.47 trillion earmarked for capital projects was not fully realised.

Urgently, the size of the federal public service of about 600 ministries, departments and agencies should be drastically cut. The Presidency, ministers, governors, and local government chairmen need to slash their battalions of aides and appointees, cut down luxuries and perks, the fleets of vehicles and multiple official residences they maintain.

Like other jurisdictions, the government should target a mix of heavy private foreign and domestic investment, credit, budgetary outlays, and long-term bonds for railways, refineries, pipelines, ports, airports, steel, mining, and gas projects. Borrowing as it is doing for the moribund refineries and Ajaokuta Steel Company is wasteful and harmful to the economy.

It deprives the health, education, water supply and highway sectors of urgently needed funding. Investment, jobs, production, and multiplier benefits will spurt if these sectors are liberalised and privatised. In the short term, credit should be applied to quickly complete projects that will yield instant returns, boost production, jobs and tax revenues like the Lagos-Ibadan Expressway, the Apapa Ports access roads, the Second Niger Bridge, and the East-West Road.

Sentiments like the “I have cousins in the Niger Republic” comment by Buhari to justify Nigeria taking loans for over $4 billion infrastructure projects in the neighbouring country are condemnable. Nigeria’s economic and security interests should take pre-eminence over all other considerations. Buhari’s economic policies need to move from its current primitive and retrogressive mode to become scientific and strategic.

The National Assembly should exercise greater rigour in scrutinising and approving foreign loan requests from the Executive. Rubber-stamping loans as the Senate President, Ahmed Lawan and House Speaker, Femi Gbajabiamila, favour, without insisting on details, accountability and caution, is a gross dereliction of its critical constitutional role. Together, the two arms of government should pull Nigeria back from the brink of disaster.