After a long period of insisting that Nigeria had no debt problem, but only revenue short-fall, the Finance Minister, Zainab Ahmed, has finally admitted to the contrary, saying that the nation’s debt stock is no longer sustainable.
Recall that the Minister had argued stridently in the past three years that Nigeria’s debt-GDP (Gross Domestic Product) was within a safe threshold, which became the administration’s mantra for contracting more frivolous loans for consumption.
However, she recently made a U-turn, as she was quoted to have stated that Nigeria was considering re-ordering its debts and extending the repayment period of its credit obligations, and has appointed consultants to advise the Government given the rising debt-service burden it is currently facing.
Her words: “It is a fact that Nigeria’s debt has increased over the last three to four years and this increase in debt was occasioned by the different kinds of exogenous shocks that the country faced, which is not unique to Nigeria.
“The situation we have by our 2023 projection is that we will be needing to use about 65 percent of our revenue to service debt. Unfortunately, the cost of debt service is rising because of a corresponding rise in interest rates globally, which is resulting also in higher debt-service costs.
“But our projection, from the debt-sustainability analysis, is that Nigeria is able to cope with its debt-service in 2022 as well as in 2023. We have been engaging financial institutions to look at the opportunity to restructure our debt to further stretch the debt-service period in order to give us more fiscal relief.”
Her declaration reportedly sent shivers among investors and creditors, and sent government officials scrambling for damage control.
Later in the week, the Debt Management Office, (DMO), released a statement to reflect its concern that the minister’s comments were taken out of context. It said the country was exploring bond buy-back and bond exchanges to manage its debt liability, and it assured investors and creditors that it would “meet all its debt obligations”.
Fears and reassurances notwithstanding, Nigeria’s total debt stock stood at N42.845trillion ($103.312billion) as at June 30, 2022 and it is spending a whooping and indeed, outsized chunk of its revenues to service the huge debt.
Nigeria’s ballooning debt profile has raised major concerns from various stakeholders. Many international bodies such as the World Bank have raised concern over the speed and scale of Nigeria’s borrowing, often highlighting its weak Debt Servicing Ratio. In this instance, some analysts have pointed out that the Government may unwittingly be borrowing a leaf from economies that have sustainable ways of servicing and refunding the loans as and when due.
However, citing plausible reasons as to why the government prefers to toe that line, some experts have averred that such governments tend to take on too much debt because the benefits make them popular with voters.
But the argument has always been that whereas the U.S economy and other developed economies are productive and can realise good revenues, Nigeria is still a mono-economy that depends on oil for almost up to 80 per cent of its foreign exchange inflow. The development does not place Nigeria on the same pedestal with the developed economies. Unfortunately, the debt stock of Nigeria continues to rise as at last week.
Already analysts believe that the nation is being plunged into another round of deeper indebtedness given that debt to revenue now stands at about 60 percent. Now, public debt is on the rise again, driven by aggressive borrowing by the present administration, as well as currency devaluation that has further increased the size of the foreign debt.