For millions of Nigerians who have been devastated by the government’s increasing thirst for easy money, especially debt, and statecraft mistakes, the end of June was a frightening time. Scary not because the government has gotten or is going to acquire a new loan, but because its leaders reminded the public of their apathy toward the true cost of growing debt and its link to other socio-economic factors. Ministers stated the total debt was quite healthy and sustainable but acknowledged that revenues, which are what they have to pay for their obligations, are a problem.
They are reducing government expenditure by decreasing expenses, enhancing the ease of doing business, and attempting to utilize the full capacity of private sector abilities to become involved in infrastructure. They’re also striving to improve public procurement transparency. They also stated that they are implementing fiscal discipline in order to increase their fiscal space so that they may continue to service their debt while borrowing further to expand their large databases.
The minister also stated the debts of certain states were not encompassed in the latest numbers, which the Debt Management Office (DMO) assessed at N33.26 trillion as of March 31, 202, up slightly from the N32.93 trillion recorded at the end of the previous year. Beyond the minister’s admission, the N10 trillion Ways and Means advance and the establishment of the Nigerian Autonomy Foreign Exchange (NAFEX), window for government companies, have revealed that the public debt is considerably larger than what has been stated, as well as the many financial services, for example, online Forex trading brokers in Nigeria were affected by the economic turmoil. It is no wonder which directly affects the country’s foreign exchange trading.
When the debt is re-profiled, the contested debt-to-GDP proportion will be greater than even the 35 per cent top limit. Nigeria’s debt to GDP ratio is now modest, and far below the 58 per cent target set by the IMF. South Africa’s debt-to-GDP ratio is presently at 77%, while Algeria and Angola’s debt-to-GDP ratios have risen from 46% to 53% and 107 to 127%, respectively, due to recent dropping oil prices. According to Okonjo-presentation Iweala’s at the AfDB event, Egypt’s debt-to-GDP ratio has increased from 84 to 90 per cent, while Morocco’s debt-to-GDP ratio has increased from 65 to 76 per cent.
Ghana’s debt-to-GDP ratio has risen from 70% to 72 per cent, with projections that it would reach 86 per cent by 2024. Kenya’s debt-to-GDP ratio has risen to 35.6 per cent, with 38.5 per cent projected by the end of the year. Kenya is now trying to lower investors’ holdings from abroad in its debt profile. Debt-to-GDP ratios in Europe and worldwide are in the vicinity of 100%. In the 2020/2021 fiscal year, India’s public debt grew by EUR 273 billion due to COVID-19 skew, totalling EUR 2.2 trillion (or 70% of GDP) by the end of the last year.
Even China, which entire indebtedness to the other countries in the world is expected to be $5.6 trillion as of mid-2020 by the Institute of International Finance, is not debt-free. According to research by the National Institution for Finance and Development, China’s entire debt would reach 270.1% of GDP by the end of 2020, up from 246.5% at the end of 2019. The study, on the other hand, makes no distinction between governmental borrowings, which are mostly off-balance sheets and opaque, and debt held by families and private enterprises. According to another forecast, China’s outstanding foreign loans will amount to $2.4 trillion by the end of 2020. In general, the country’s national debts have risen dramatically in the past few years, according to Dr. Bongo Adi who is an economist and made a comment t that the fact that the global bond market is almost 50% larger than the global economic production has highlighted the cruel role of debt to contemporary economies.
Per the International Capital Market Association (ICMA), the entire expansion of the Indian bond market was around $128.3 trillion in August 2020, whereas other analysts estimated last year’s GDP at $84.5 trillion. The worldwide average bond market size to GDP ratio now stands at 152 per cent. Meanwhile, the entire global debt stock exceeded the IIF’s prior forecast of $277 trillion, reaching an all-time high of $281 trillion, or 233 per cent, of the value of goods and services generated globally last year. As a result, Nigeria’s debt to GDP ratio is modest.
But, as the Finance Minister and Senate President, Ahmad Lawan, have indicated, if this justifies further borrowing. In June, the Senate President declared that because Nigeria is a poor country, it has no choice but to borrow to pay its programs – a comment that appeared to rule out any possibility of discipline in what has become a national economic management culture. Low debt-to-GDP ratios have been used by successive administrations as an excuse to borrow more. To service or amortize debt instruments, the government turns to revenue rather than GDP. Agriculture contributed almost 21% of the country’s nominal GDP in the first quarter.
The number, which had previously represented a historical tendency, has recently receded as well. Before telecoms and a few other industries entered the economic mainstream, it reached as high as 40%. Manufacturing and telecoms are two other important contributors to GDP. Unfortunately, oil, not agriculture or industry, is the country’s major source of revenue, accounting for less than 10% of total production. Agricultural operations, by the same rationale, are mostly tax-exempt, suggesting that the sector is not making steady profit. This implies that the sectors that generate GDP, which has historically influenced government borrowing, may not offer the liquidity required to finance government borrowing.
As a result, Adi started this week at a seminar on debt and economic recovery that revenue consideration is a key component in determining debt sustainability, far more important than GDP. Last year, the government spent N2.43 trillion on debt servicing, accounting for 71% of the obtainable budget resources. This was stated in the Ministry of Finance, Budget, and National Planning’s budget implementation report, which was issued in May. Overall, the percentage was down from 99 percent in Q1 2020, when the administration earned N950.56 billion and got N943.12 billion in debt-service bills.
The reported debt is equivalent to N166,300 for each Nigerian on a per capita basis. The World Bank and the International Monetary Fund (IMF) have both criticized the country’s tax system as inadequate in light of its potential for further economic development. These warnings have highlighted a history of over-reliance on volatile oil earnings, as well as a proclivity to borrow when faced with adversity. The current publicly stated debt per capita is N166, 300 Nigerian nairas ($437.26), based on the prevailing currency rate at the time the debts were calculated. This is the nominal cost per Nigerian that the government has incurred.
However, as Okonjo-Iweala stated last week, the true consequence of Nigeria’s increasing public debt is the country’s incapacity, like that of other African countries, to fund initiatives that would improve the socio-economic lives of ordinary citizens.
