Cluelessness fueling Nigeria’s unsustainable borrowing

Nigeria’s honorable minister of finance made an attempt to deconstruct Nigeria’s debt burden a few weeks ago, but she lost me at the point where she alluded to the fact that since Nigeria’s debt to GDP ratio is 17.8%, and compares favorably to our peers, then we are in good stead. The GDP is the measure of the total value of goods and services produced in a country each year. The debt to GDP idea is an attempt to compare how much a country owes to how much it earns, taking the GDP as a measure of National Income. The problem with this comparison is that the government does not have access to all the national income, only its share of taxes, which in Nigeria is negligible. So, the appropriate measure is either the debt to taxes ratio or debt to revenue.

The minister also made mention of the total debt burden being stable when denominated in USD, but accelerating in Naira terms. It is commonsensical that when your exchange rate has depreciated by about 100% between 2015 and now, then the higher divisor used to convert naira debt into dollars automatically masks the extent of the damage done in dollar terms. When we, however, examine what has happened to the dollar denominated external debt of both the federal and state governments between June 30th 2015 and June 30th 2017, we see the debt stock increasing from $10.32bn to $15.05bn, a jump of 45.8%, this doesn’t suggest stable. The domestic debt of states during this period has increased from N1.69trn to N3trn, a 77% growth, while the federal government’s domestic debt increased by 43.2%, from N8.4trn to N12.03trn. With a total public debt of N19.64trn, of which the federal government accounts for about N16trn, then federal government’s debt to revenue measure is about 533%. This is a cause for grave concern.

Why have we borrowed so much over the past two years, and how do we intend to pay the debt. Again, the minister of finance tried to explain the why by blaming it on the previous administration’s commitments that went unfulfilled which the present administration is now honoring, coupled with the collapse in revenue and lack of savings. I sure don’t hold brief for the previous administration, that period will go down as one of the most wasteful eras in the annals of the country, but the present administration, by its actions and inactions, has also contributed in no small measure to the debt burden. The failure to release the reins on the exchange rate at the appropriate time did significant damage to the country’s balance sheet. If we had let go of the exchange rate at the appropriate time, then we would have gotten more naira for our dollars which would have reduced the extent of borrowing. The excuse that it would have fueled inflation isn’t plausible because most goods and services were already being priced on the back of the parallel market rates.

Then the government has continued with the same processes that have ensured we run a large, wasteful and inefficient civil service under the guise that we were in a recession, and had to spend our way out of it. For one, the bailout given to state governments was an opportunity to impose on their executives to prune their outrageous expenses. Any state whose executive can afford to maintain a jet for his travels can’t be said to be broke under any guise or form. Any governor that can afford 22 cars for 4 wives on the state’s budget is obviously not broke. It was a question of priorities, and the federal government just offered them a blank cheque to fund their luxurious way of life at the detriment of the future generation. The federal government has also failed to re-engineer its processes. Any government that is said to be broke, and has projects that can fund itself, but chooses to put it on the budget is clueless. There is no way the government should fund the Lagos-Benin express way for example. If the minister cannot structure a concession deal for such a viable, and low hanging fruit, then we are in trouble. There’s also the issue of the federal government engaging contractors to build houses for civil servants; that’s the most ridiculous thing I’ve heard. My expectation is for the government to develop a framework by which the civil servants that qualify can access mortgage that will be backed by a portion of their salaries and gratuity. There’s still the ongoing waste on fuel subsidy as well as many government agencies whose activities can be outsourced being carried on the national budget. So, the present administration is as guilty as the past in driving us into further debt.

0I’m not sure how we intend to pay back our debt, but I’m certain if we continue on the current trend, the economy will implode on the back of debt burden further down the road. Investments in infrastructure is not an end in itself, it is just a means. Infrastructural spending should facilitate productivity together with movement and exchange of goods and services. Who are those people that will be productive in future from whom the government expects to earn taxes? Obviously not the educated illiterates that we churn out yearly from our schools, and sure not the recurrent expenditure which has gulped a significant portion of the debt. This administration needs to have a rethink around its borrowing habits and intentions, as the future revenue stream is far from guaranteed.

Olugbenga A. Olufeagba