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The Federal Government’s rising loans from the Central Bank of Nigeria (CBN) through Ways and Means (W&M) advances must be curtailed in view of the increasing debt burden of the country. Nigeria’s huge debt stock has contributed to the nation’s inflation rate, food prices and interest rate on payment of mature loans. The World Bank has also warned that the country’s borrowing binge and the huge interest on debt servicing will soon become unsustainable if not urgently addressed. It has predicted that interest servicing may likely take 62 per cent of government’s total revenue by 2027.
President Muhammadu Buhari has recently admitted that the Federal Government might pay N1.8 trillion on the N23.7trillion W&M loans from the CBN, representing about 2.4 per cent of the nation’s Gross Domestic Product (GDP). The loans from the apex bank have exceeded the permissible level and violated the Fiscal Responsibility Act, a trend blamed for the current high inflationary headwinds. This puts the country in serious fiscal crisis.
Last week, the Senate declined the president’s request to restructure the W&M advances. In January 2021, the CBN Governor, Godwin Emefiele, justified why the apex bank would continue to print more money to finance the government’s budget. According to him, “if the government cannot finance all its obligations, the CBN should offer support as a lender of last resort.” He was responding to reports by global rating agency, Fitch, and the International Monetary Fund (IMF) that had cautioned that such financial instruments posed serious risks to Nigeria’s macroeconomic stability.
Fitch had specifically claimed that CBN financing of government’s budgets through W&M advances had tripled since 2015, a heavy burden on the nation’s debt stock, with far-reaching implications on rising inflation, unemployment and poverty. The CBN has neglected by advice by experts on how to reposition the economy. IMF had earlier warned that unrestricted borrowing by the Federal Government would increase poverty in Nigeria by five million annually, while the World Bank stated that between 2020 and 2021, inflation rate would leave over eight million Nigerians below poverty line. The National Bureau of Statistics (NBS) recent report shows that 133 million Nigerians are in multi-dimensional poverty.
The N21.83 trillion 2023 budget, which contains about N6.5trillion deficit or 4.5 per cent of Nigeria’s GDP, is likely to plunge the country into further borrowings. It is also capable of creating economic setbacks for the country. And any country that borrows to service its debts as the government is doing currently will be in a debt-trap that can harm the economy. Nigeria should learn from Ghana’s experience that is at present defaulting on both local and international debts.
The Director-General of the Debt Management Office (DMO), Ms. Patience Oniha, has predicted that Nigeria’s debt stock may rise to over N77trillion by May this year. Currently, the debt profile stands at N44.06trillion as of the Q3 2022. Interest rate on the N23trillion loan from the CBN is 18.5 per cent. According to the Minister of Finance, Budget, and National Planning, Zainab Ahmed, the government spent N5.2trillion to service debts between January and November 2022, but generated only N6.5trillion within the same period.
While the N77 trillion debt stock is frightening, the Finance Minister says the government is not planning to restructure the debts, but is committed to meeting domestic and foreign debt obligations. The Federal Government’s debt burden comes amid further concerns that at least 28 state governors have piled up N5.8trillion debts for incoming governments in their states. According to the DMO statistics, the states’ debts have risen above 200 per cent of their projected revenues for 2023. The debt figures based on the analysis of the DMO consist of domestic borrowings from local creditors and external borrowings from foreign or International creditors such as the World Bank, IMF and African Development Bank (AfDB).
Details of the states’ debts show a total domestic debt of N4.38trillion, while external debt stands at $1.42trillion, based on last week’s CBN exchange rate of N449.53 per one US dollar. Lagos State has the highest debt profile, followed by Kaduna and Rivers states. These states cannot pay off these debts without harming other obligations. Certainly, the declining revenues from the Federation Accounts allocation will put more pressures on the already precarious fiscal position of the states. Apart from reducing the cost of governance, let there be fiscal and monetary policies that will drastically reduce budgetary deficits at all levels of governance.
