THE International Monetary Fund (IMF), in a recent report, raised concerns about Nigeria’s rising debt profile and its capacity to repay the debts. Speaking in Abuja, IMF Senior Resident Representative and Mission Chief for Nigeria, Amine Mati, said: “Nigeria’s debt stock figure, which is 20 to 23 per cent of Gross Domestic Product, is still quite low by any standard. The issue is capacity to repay the debts. So, interest payment to revenue is an issue.”
On the contrary, the Finance Minister, Mrs. Kemi Adeosun, has said repeatedly that the country is in a good stead to repay its debts. The minister says that the borrowings undertaken by the current administration were done deliberately to reflate the economy. According to her, “We will have no problem managing our debts because they are sustainable. As the economy grows, we will get everyone to pay their tax so that we will be able to service the debts. If you compare us with any of our neighbouring countries, you will see that we are better than any of our neighbours. We will like to keep it that way.”
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While there is no doubt that the minister’s explanation is germane, the real issue which should be of serious concern to those in government is the short, medium and long-term calamitous effects of this strategy on the economy and the citizens as the debt keeps snowballing at an alarming rate. The desire to grow the economy is laudable but is it right to grow the nation’s debt profile at a rate higher than the economic growth rate?
Of great concern is the country’s penchant for borrowing even in the time of prosperity. Despite the prices of crude oil rallying over the last 18 months, Nigeria has continued to borrow at an unprecedented rate. It appears that the more money the country makes from crude oil sales, the higher the desire to borrow. Crude oil prices hovered around $30 per barrel in 2015 but is now around $80 per barrel, yet between 2015 and the current year, the country’s debt profile has risen by over N10 trillion. Consequently, the allocation to debt servicing has also been on the increase. In 2016 budget, N1.48 trillion was allocated to debt servicing. In 2017, it was N1.84 trillion and in 2018, it went up to N2.014 trillion. Given the rate at which the debts grow, will Nigeria be able to keep up with the repayment terms, especially if there is a slide in the prices of crude oil?
According to Vitor Gaspar, IMF’s Director of Fiscal Affairs Department, Nigeria spends 66 per cent of its tax revenue on debt servicing. Gaspar stated this while speaking at the World Bank/ International Monetary Fund Spring Meetings in April 2017. A former governor of the Central Bank of Nigeria (CBN), who is currently the Emir of Kano, Alhaji Lamido Sanusi, also said that the nation expends 66 per cent of its total revenue on debt servicing, leaving it with just 34 per cent for both capital and recurrent expenditure. The implication of this is that unless there is a deliberate decision to stem the tide, it will get to a point that the country would need to borrow to pay its debts. That is the kernel of IMF’s message; ramping up debts is not in the interest of the country. Nigeria needs to scale down borrowing to ensure its sustainability.
It is our considered opinion that rather than always trying to explain away the expert advice of international bodies like the World Bank and the IMF, the government will do well to heed their counsel and steer the nation in the path of prosperity.