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Speaking at the Nigeria International Partnership Forum, on the sidelines of the 77th session of the United Nations General Assembly in New York, Akinwumi Adesina, the president of the African Development Bank (AfDB), while highlighting the rich investments potentialities of Nigeria and the strides the country is making as the leading market in digital economy, financial technology and entertainment in Africa, also expressed concerns about Nigeria’s growing debt profile. According to Adesina, “Today, Nigeria has five of the seven unicorns in Africa and raised almost $ 1.4 billion of the total $4 billion raised by fintech companies across Africa in 2021,” with such Nigerian brands as Flutterwave, OPay, Andela and Interswitch holding the status of unicorn companies, worth at least $1 billion each.
While Nigeria remains an “investors dream” with its large market of about 208 million people and huge mineral resources endowments, including oil and gas, Adesina drew the attention of his audience, with Zainab Shamsuna Ahmed, Nigeria’s finance minister, in attendance, to the fact that as rosy as Nigeria’s investment climate looks, “roses come with thorns.” The thorns here are a massive deficit in power, energy and transportation infrastructure, requiring about $759 billion over the next 23-year period (2020-2043) to fix and a crippling debt of about $103 billion, which Adesina rightly described as a “burden”. And Nigeria’s actual growth and development can only be “conditional” on its ability to fix this humungous infrastructural deficit and a better debt management strategy.
Predictably, the reaction of Minister Zainab Ahmed to Adesina’s informed position as the head of a major creditor institution and development finance partner that Nigeria has a debt problem was consistent with the deflective pattern that has been adopted by the President Muhammadu Buhari administration, which has come under criticism for its excessive borrowing, which has led to a rise in Nigeria’s debt profile from N12.2 trillion to N95 trillion in 2022. Speaking after Adesina at the event, Minister Zainab had this to say, “Everywhere we go, we hear of this issue of the debt of Nigeria is a problem and is not sustainable. The debt and debt financing we do in Nigeria is following a designed debt management strategy”.
This design denominates Nigeria’s debt to GDP and sets a threshold of 40% limit on borrowing. And because Nigeria’s debt of about $100 billion is less than 25% of its nominal GDP of $440 billion, Nigeria does not have a debt problem, according Minister Zainab. Rather, she stated emphatically that Nigeria has revenue issues but insisted it’s not a debt problem.
However, the proposals for Nigeria’s fiscal year of 2022 reveal a huge debt problem that is made worse by an acute problem of revenue shortfall, a problem that could be compounded by more borrowing amid dwindling revenue. With an estimated crude oil production of 1.6 million barrels per day (mbpd) and benchmark price of $70p/b to be exchanged at the rate of N435.57, Nigeria is proposing a N20.51 trillion budget with a deficit of N10.78 trillion because of inadequate aggregate revenue projection of N9.73 trillion. While Nigeria is proposing to borrow more to finance its 2022 budget deficit, it has an existing obligation to spend N6.31 trillion on servicing of it’s over $100 billion debt; an amount that approximates 70% of its projected revenue of N9.7 trillion. And with a non-debt recurrent expenditure of N8.27 trillion, and a capital expenditure of N5.35 trillion, Nigeria may end up borrowing to service debt in the next fiscal year.
Due to Nigeria’s compounding debt problem as a result of revenue shortfalls, Minister Zainab’s Medium Term Expenditure Framework and Fiscal Strategy, which is based on debt-to-GDP rather than debt-to-revenue projections, may turn out to be a medium term expenditure framework and fiscal tragedy. It is the fixation on debt-to-GDP (a convenient strategy to deflect from concerns over excessive borrowing) rather than debt-to-revenue by Nigeria’s finance managers that led to a situation of groping in the dark towards the edge of a fiscal cliff. It is also the debt-to-GDP template of benchmarking the severity of Nigeria’s debt profile that has manifestly become a big problem, to the extent that Nigeria is spending a disproportionate portion of its revenues on debt servicing. This may have also informed the inability of Zainab Shamsuna Ahmed to draw a correlation between a revenue problem and a debt problem. When you borrow in geometric proportions on revenue that is in arithmetic proportions, simple mathematics suggests that your debt will soon swallow up your entire revenues thereby leaving you in a serious debt problem. And this seems to be the case with Nigeria.
One of the ways out of Nigeria’s debt problem will be to listen and take heed of informed economic advice by development partners such the AFDB that has invested very much in critical sectors of the Nigerian economy. To unlock Nigeria’s huge economic potential, the AfDB has invested $4.5 billion in Nigeria. Along with the International Fund for Agricultural Development and the Islamic Development Bank, AfDB, under the leadership of Akinwumi Adesina, has provided $540 billion to finance food and agro-allied value chains across to make it more export competitive and earn more foreign exchange. Nigeria’s export competitiveness will receive an additional boost with the Lagos-Abidjan highway project that is being financed by a consortium of investors that were mobilized by the AfDB.
Nigeria needs help to overcome its revenue shortfall-induced debt problem before it degenerates into a crisis situation. With Nigeria’s daily oil production down to an all-time low just a little over 1mbpd output, this may render the 2022 budget prostrate because of unrealistic revenue projections, which may necessitate even more borrowing. But before Nigeria slides into debt crises, it must listen to those who can offer help because it needs all the help it can get now.
