Nigeria’s rising debt profile is fast becoming a worrisome trend. Successive governments have, over the years, spent a large chunk of the country’s revenue to service debts.
Analysis of data obtained from the Debt Management Office shows that Nigeria has spent a total of N7.04 trillion to service both domestic and external debts under President Muhammadu Buhari’s administration alone.
The Breakdown: Nigeria’s rising debt and the cost of servicing them has elicited wide-spread criticisms in recent times, with many people calling on the Government to do something.
Note that since President Buhari assumed office in 2015, the country’s debt profile has increased by almost 107% in naira value. In the first quarter of 2015, Nigeria’s total public debt stood at N12.4 trillion or $64.2 billion, while it rose to N24.9 trillion or $81.27 billion in March 2019.
- External debt service gulped a total of N931 billion or US$2.1 billion in the last 5 years
- Commercial loans take the biggest share of Nigeria’s total external debt servicing amounting to US$1.58 billion
- In just one year (2017-2018), total external debt service increased by over 200%.
- Nigeria paid the sum of $464 million or 142 billion to service external debt in 2017, while the figure rose significantly to $1.47 billion or 451.8 billion in 2018.
- Just like external debt, domestic debt servicing has also been gulping over N6.1 trillion in the last 5 years.
- The total amount spent on servicing Nigeria’s domestic debt in 2015 was N1 trillion. Fast forward, the figure on an annual basis rose to 1.79 trillion in 2018 representing a 76% increase.
The high cost of debt: Loans are not intrinsically bad in themselves. However, as the popular saying goes, “there’s no free lunch, not even in Freetown”.Consequently, debt instruments that are given to the government of a country often come with terms and conditions (such as interest repayments plans) that are difficult to meet.
Agreed, debts can also be flexible, with a wide range of financial conditions that are specifically tailored to meet a country’s overall debt management strategy. Yet, there are many things to worry Nigerians in view of the country’s public debt profile;
- The possibility of a foreign creditor taking over the country’s assets due to the inability to repay loans.
- The possibility of launching the country into another recession if the debt profile is not properly managed.
- Considering how much President Buhari’s Government has spent on debt servicing so far, analysts are worried that the country’s debt profile will hit a new high due to bad economic policies and realities.
Other factors to consider: Although Nigeria’s debt servicing has gulped over 28% of the country’s debt stock, it will not be fair to blame it all on bad government policies. Recall, that Nigeria nosedived into economic recession during the onset of the current administration, and it took a strategic increase in government expenditure and other beneficial policy measures to rescue the country’s ailing economy. Below are some of the measures-
- In a bid to tackle shrinking growth, the government initiated the Economic Recovery Growth Plan (EGRP) and growth plan in 2017
- The crux of ERGP provides for effective collaboration and coordination with the States to ensure that the Federal and State Governments work towards the same goals.
- During the full-blown recession period, several states defaulted in paying salaries to the workers while poverty soars in the land. Following this, the Buhari’s administration intensified debt borrowing and offered bail-out to almost 30 states in the country.
In the meantime, there could be more debt on the way. This is because evidence suggests that Nigeria is broke and at the edge of bankruptcy. As President Buhari’s administration is desperate for growth, it will be needing funds to facilitate the growth plan and as such, may have to rely on debt. After all, debt sourcing appears to be a very potent tool in the hands of the current administration.