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Governor Godwin Obaseki of Edo State recently decried the poor state of the economy. He expressed concern that the federal and state governments would find it very difficult to pay workers’ salaries beyond June without resorting to printing of money or removal of fuel subsidy. Obaseki disclosed this while delivering his address during the 2023 May Day celebration in Benin City.
He argued that none of these options would augur well with Nigerian workers. However, he enjoined that ‘we must make sure that the burden and pain of these measures, which must be taken, are not borne by workers alone.’ Apart from urging Nigerian workers to ensure that they participate actively in all discussions on subsidy removal, Obaseki told them to hold governments accountable for their policies and programmes.
No doubt, Governor Obaseki has been quite prescient and outspoken in drawing calling public attention to emerging threats to the economy, and the way forward. This is not the first time he would raise such a red flag on the economy. In 2020, he alerted the nation that the Central Bank of Nigeria (CBN) was printing the local currency to make up for the shortfall of revenue shared monthly to the three tiers of government. According to him, government resorted to this measure in 2020 because the Nigerian National Petroleum Company Limited (NNPCL) was no longer remitting proceeds from the sale of crude oil to the Federation Account in line with Section 162(2) of the 1999 Constitution (as amended) due to fuel subsidy payments.
Though the federal government initially tried to debunk the report, the CBN later acknowledged that, indeed, it did so, to the tune of N22.7trillion through the ‘Ways and Means’ Advances. The CBN Governor, Godwin Emefiele, said it was for budget deficits. Last week, Obaseki was vindicated following last week’s Senate approval of the CBN’s Ways and Means Advances to the federal government.
Therefore, Obaseki’s new intervention is apt and timely. Already, Nigerians are worried over worries over Nigeria’s soaring public debt burden currently put at N77trillion (including the N22.7trillion W&M) and the likely implication of default in repayment of some of the maturing loans that will be inherited by the incoming administration. Experts have recently decried the poor application of these loans to the economy and the impact on the citizens. Apart from the fear of default on the loans, a downgrade of Nigeria’s bonds in the capital/international market is imminent.
Besides, loans from China alone has hit all-time high of $4.29billion. According to the DMO, Nigeria’s indebtedness to the International Monetary Fund (IMF), the World Bank Group, the African Development Bank (AfDB) stands at $31.98billion. Loans from the World Bank alone as of December 2022 stood at N6trillion, and $3.4billion from the IMF. There are also loans from Japan, Germany, France and India. Nigeria’s indebtedness to China has increased by 209 per cent in the last 8 years. It climbed from $1.39billion to $4.29billion between June, 2015 and December, 2022. Loans from China account for 84.73 per cent of Nigeria’s total loans. The remaining 15.27 per cent comes from other multilateral institutions.
President Muhammadu Buhari inherited about $10.32billion public debt in 2015, and he is leaving behind about $103.11billion debt, excluding the N23trillion Ways and Means Advances from the CBN. However, figures from the DMO indicate that loans from China are concessional with an interest rate of 2.5 per cent per annum, a tenor of 20 years and a moratorium of seven years. It is likely that China will listen to Nigeria and other countries in debt overhang for debt restructuring amid pressures from the United States and others. Nigeria’s total debt has negatively impacted the nation’s economy and pushed 133 million Nigerians into multidimensional poverty.
Regrettably, Nigeria has failed to fully service its loans from China that have accumulated in the last two years. These include the principal and repayment charges. For instance, the principal fee from January 2021 to December 2022, was $153.85 million (N69billion), while interest charges have accumulated to $92.1million or N41.3billion. Nigeria may default in repayment of some of these loans.
Also, the issuance of promissory notes by the federal government to settle some liabilities has reportedly contributed to the rising debt stock, with over 90 per cent of revenue generated being spent on debt servicing, leaving little for the provision of social amenities that can better the living standards of the citizens. The task ahead for the incoming government is huge. We advise that the new administration should drastically cut the cost of governance, and embark on prudent management of resources. The NNPCL should be held accountable for fuel subsidies and remittances to the government treasury. We believe that in the meantime, Nigeria can do without borrowing.
The economy must be saved from imminent collapse. There must be a rescue plan for the economy with timelines that will be kept. The incoming government must assemble a cabinet with experts in diverse areas of the economy. Let the government create an enabling environment for both local and foreign investors so that Nigeria will become the preferred economic destination in Africa.
