Nigeria’s burgeoning debt

Going by figures from the Debt Management Office, DMO, the nation’s total dept stock as at June 2017 stood at N19.64 trillion or $64.52 billion using the official exchange rate of N305 to a dollar
A breakdown of the debt stock shows that external debts, owed by both the federal government and states stood at $15.05 billion while domestic debts owed by both tiers of government was N15.03 trillion or approximately $49.46 billion.
Just taking Nigeria’s debt stock alone, the country’s debt position would not look like much of a problem especially if we are taking the standard measurement of debt sustainability, which is debt to GDP ratio. As a percentage of GDP, Nigeria’s external debts just stand at about 15.8 percent, which is still below the threshold of 19 percent set by the Debt Management Office (DMO) for the country.
However, the significant increase in Nigeria’s debt stock in one year remains a cause for concern that indicates that this self-set threshold set by the DMO could easily be breached if current borrowing trends continue. Between December 2016 and the half year of 2017, Nigeria’s total external debt stock rose 32 percent from $11.41 billion to $15 billion. The only other time Nigeria’s external debt rose at that fast pace in the last five years was between 2012 and 2013 when the total debt stock rose 55 percent from $5.6 billion to $8.8 billion. Between 2013 and half year 2017, Nigeria has almost doubled its external debt stock.
The country is also growing its domestic borrowing at a similar pace. Net domestic debt of N15 trillion as at June 2017 is 43 percent or N4.5 trillion higher than the total domestic debt of N10.5 trillion in December 2015. The fast pace growth in both domestic and external debts could be explained by the fact that while the government has seen a sharp collapse in revenues largely due to lower oil prices and lower production brought about by the crisis in the Niger Delta, government expenditure has actually gone up within the same period.
Lower revenues mean that the government has had to support its expanded expenditure with increased borrowing, mainly by the issuance of bonds and treasury bills in the domestic market and recently Eurobonds in the international markets. The African Development Bank has also chipped in with a US$1 billion loan, of which US$600 million has already been disbursed to the government.
But the worry is that increased borrowing is taking us closer to a debt crisis. While the country’s debt to GDP ratio is still within acceptable country, regional and international thresholds for the size of Nigerian economy, the risk lies in the rising debt service burden. The International Monetary Fund (IMF) in its March 2017 Article IV commentary on Nigeria raised concerns about the country’s interest payments to revenue ratio which the IMF put at an all-time high of 66 percent. This basically means that Nigeria is spending an average of N66 of every N100 revenue, servicing debts rather than investing it in infrastructure.
We understand that the government is caught between declining revenues and rising expenditures all at once. But there are more sustainable solutions than plunging the nation into unsustainable debt. Nigeria’s tax to GDP ratio is one of the lowest in the world, meaning tax-collection rate is very poor and can be grown exponentially. Additionally, the government could sell public assets, intensify its public private partnership drive to finance capital projects and infrastructure and or outright concessioning of commercially viable government assets. Initial indications were that the President Buhari led administration was not interested in any of these solutions, which perhaps resulted in this high debt accumulation in the last two years in a bid to execute projects from government’s lean purse.
But current indications show that the government is having a change of thinking. The return of toll gates is back on the table as the government seeks to improve road infrastructure without necessary putting its hands into its dwindling revenues. The country’s airports are also up for concessioning while PPP is being used for some critical road infrastructure.
The beauty of improving tax collection and adopting the PPP model is that tax collection especially compels the government to be accountable – and there is nothing more important in a democracy – especially Nigeria’s presently– than government accountability.