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Despite the latest data by the National Bureau of Statistics (NBS) that the economy recorded a growth rate of 3.4 per cent in 2021, the highest in seven years, outpacing population growth of 2.7 per cent, Nigeria’s debt-to-GDP ratio remains worrisome. Last week, the Federal Government was excited at the NBS report which on the surface means that the economy did well in 2021. However, the fact is that the economy weakened significantly in the fourth quarter (Q4) of 2021 after recording a decline in the Q3 of 2021. Nigerians are still grappling with economic hardship, with prices of essential items on the rise, and with about 48 per cent or 90 million of the population in extreme poverty.
Perhaps something more disturbing is the fiscal deficit, which the International Monetary Fund (IMF) has predicted could result in Nigeria being “caught up in a very difficult situation,” unless it can properly manage the GDP ratio dynamics, even if the country is capable of repaying part of its soaring debt. The debt-to-GDP ratio is the ratio of a country’s public debt to its Gross Domestic Product. It can also be interpreted as the number of years it would take to pay back its debt if the GDP was used for repayment. Simply put, GDP is what the country produces. In real terms, the higher the debt-to-GDP ratio, the less likely the country will pay back, and the higher its risk of default, which could cause financial panic in the domestic and international financial markets.
Therefore, there is little to celebrate with the NBS report as regards the 3.4 per cent GDP growth. There is so much work to do, especially in the area of governance and transparency, to stimulate economic growth and recovery. Currently, Nigeria’s debt-to-GDP ratio is 36 per cent, but the IMF Resident Representative in Nigeria, Ari Aisen, said this could rise to 43 per cent, a figure the global financial institution says will be “very large to bear”, for Nigeria. The IMF has re-echoed our concern that in spite of government’s repeated claims that our debts are still within the acceptable threshold, the rate of borrowing has increased to unacceptable level, capable of making repayment default a clear and present danger, especially when revenue generation is presently in steep decline.
For instance, last year, the contribution from oil revenue represented only 53 per cent of the performance of the prorated sum in the 2021 budget, while that of non-oil tax revenue was 118 per cent over the projected target. On the expenditure side, the federal government spent N12.56trillion out of the N13.57trillion within the same period, January-November 2021. That left little as saving. A hefty deficit of N7.1trillion was incurred within the same period. All of that means that the economy is on a cliffhanger. That is the warning international financial institutions and experts have been handing down to government, but it seems the government is not heeding the advice.
Also, the World Bank had last year raised the alarm over Nigeria’s rising debt. According to experts, while the country’s debt stock of 35 per cent of the GDP is considered sustainable, any macro-fiscal shock can push the debt to unsustainable levels. They also enjoined the government to put a lid on borrowings. Borrowing for consumption and mismanagement of funds have worsened Nigeria’s fiscal deficit. According to a recent World Bank data, Nigeria’s total debt stock has doubled in recent years.
From N18.89trillion in 2015, it rose by 100 per cent in 2021, to N38trillion. According to reports, the nation’s debt stock will reach an all-time high of 40 per cent of the GDP in the next three years. Rising debt has hampered investments in the country and affected foreign investments and ease of doing business.
The amount spent on debt servicing is lowering other critical public investments on other sectors of the economy. Available statistics show that interest costs have risen above two per cent of the GDP since 2018, reaching 2.4 per cent of the GDP in 2019. This is not good for the economy. Recent figures from the Debt Management Office (DMO) revealed that in the first nine months of last year, N2.48trillion was spent on debt servicing. To overcome these problems, government must stop the binge borrowing and quickly evolve new measures to revamp the economy.
