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With mounting debts, economic experts are deeply concerned that the incoming administration in May 2023 is likely to inherit almost an empty treasury as the current administration may leave behind an estimated N65 trillion debt and other liabilities. The matter is not helped by poor revenue generation, which has made the administration to borrow excessively to meet its financial obligations amid acute fiscal challenges. Government’s projected revenue is equally dropping. According to the Federation Account Allocation Committee (FAAC), the August revenue dropped by N280bilion, as the federal government, states and local councils shared N673.137billion for the month. This is against N954bilion shared in July.
The N65trillion debt does not include undocumented contingent liabilities to striking university lecturers and other public employees that the government is reported to be indebted to. Those on the contingent liability list include Nigeria Mortgage Refinance Company Plc, Nigeria Ports Authority (NPA)- Lekki Deep Seaport, Pension arrears, NNPC-AKK Gas Pipeline project, among others. Available records show that the debt excludes other pending financial obligations to non-lending bilateral and multilateral institutions.
President Muhammadu Buhari has also asked the Senate to approve the N402billion promissory notes to enable the government pay a stipulated amount to the creditors at a specified date. With about eight months for the present administration to wind down, it is uncertain that the promissory notes will be paid before May 29, 2023.
The economic outlook does not seem bright. According to the Debt Management Office (DMO), the national debt has reached N43.84trillion as of June 30, 2022. The debt stock, the agency says, includes domestic and external debts of the federal and state governments and the Federal Capital Territory (FCT). This means an increase of N1.24trillion in three months, with domestic debt rising to N26.23trillion or $63.24billion, while external debt is N16.6trilion or $40.06billion from Q1 to Q2 2022.
The total debt stock of the state’s increased by 11.6 per cent in the first half (H1) of 2022 as against the combined growth of 8.3 per cent in the sovereign debt. In all, the total public debt to GDP as of June 30, 2022, was 23.06 per cent compared to the ratio of 23.27 per cent as of March 31, 2022. In real terms, Nigeria’s debt-service-to-revenue ratio remains very high.
Due to excessive borrowing, Nigeria’s debt profile is no longer sustainable, especially as foreign investments and revenue generation are in decline. Let the government resist the temptation of borrowing and effectively manage the economy before leaving office. Therefore, it has become expedient for government to explore other options of revenue generation outside oil. It is unfortunate that the National Assembly is not helping matters by approving almost every conceivable request for loans from the presidency. The legislature must scrutinise any loan request before approval. We say this because any default in loan repayment has far-reaching consequences. Economic experts are worried that that Nigeria’s borrowing pattern could harm the economy and delay growth and recovery. There is legitimate concern that with poor revenue performance, Nigeria is dangerously close to overshooting the borrowing threshold. Besides, the high interest rate charged by banks is capable of hampering consumer borrowing as well as domestic and foreign investors. Based on the CBN policy, bank lending has jumped to 76 per cent in 3 years. With the latest hike in interest rate to 15.5 per cent by the CBN, harder times await Nigerians.
This is the right time to intensify the diversification of the economy and salvage investments across all sectors, manufacturing and business enterprises. We are not unaware that the economy requires massive injection of funds to ramp up growth, but that should not be at the risk of unrestrained borrowing. Investment in the non-oil sector is one untapped area that can increase export revenue and grow the GDP.
Currently, the solid mineral sector contributes less than one per cent of the GDP even when there are scores of solid mineral deposits across the country. These are resources that can cushion the effect of dwindling revenue from crude oil. The agricultural and agro-processing industries remain hugely untapped. But, government must address insecurity across the country.
The coming months could be tough for the economy because of the general election next year. However, it is a time to reflect on the state of the economy. This is a period that requires good leadership and imaginative thinking by government policymakers. It requires enunciating economic policies that will broaden the revenue base to navigate the country out of its present financial challenges. The government should, among other things, create an enabling business environment that will attract local and international investors.
