Debt Management Office

Barely 16 months to the end of President Muhammadu Buhari’s second and final term in office, the window of opportunity to deliver the promised strong economy and the secured nation is becoming narrow.

Indices such as dwindling earnings, mounting debts, unaffordable debt servicing, deepening macro instability, rising insecurity, and waning public goodwill appear to be working against the President’s desire to finish strong.

And as he inches closer to retirement from public life after about five decades of service, part of which he had spent as military head of state and minister of petroleum before being democratically elected, Nigeria’s huge debt profile could be the most resounding talking point in the assessment of post-Buhari era.

To be sure, from May 2015, when the President inherited what his cabinet members have described as “a dying economy,” till date, Nigeria’s public debt stock has increased by over threefold. Precisely, the country has added N25.94 trillion to its initial debt in less than seven years.

As of the first quarter of 2015, the country’s public debt stood at N12.06 trillion, a figure that has ballooned to N38 trillion as of last September, recording a growth of 208 per cent.

Still, the official statistics under-reports the actual amount owed. Last year, the Fitch Ratings, a global research institution, raised the alarm that the government’s reliance on ways and means facility (WMF), facilities sourced from the Central Bank of Nigeria (CBN) to fund budget shortfalls, to finance its deficit was a major cause of the country’s rising inflation.

The Debt Management Office (DMO) did admit the existing WMF was a challenge and disclosed a plan to convert it to a 30-year debt instrument. As at early 2021, the amount, which is not captured by the national debt reporting, was estimated at N10 trillion. At a media function later last year, the DMD Director-General, Patience Oniha, could not give the updated figure but confirmed that, “it was estimated at N10 trillion earlier in the year.”

Since about a year ago when DMO said it would convert the opaque WMF to a long-term instrument, no update on the intention or the status of the debt has been given again. The absence of full disclosure of the WMF outstanding is but one of the many pieces of information about the country’s debts shrouded in secrecy.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, had also disclosed at a forum by the African Development Bank (AfDB) that what had been reported as national debt did not capture some obligations of some states. She promised that efforts were ongoing to document all states’ debts.

The World Bank had warned that poor transparency was a challenge in the discussion of debt sustainability of developing countries, including Nigeria. AfDB President and former Nigeria’s Minister of Agriculture, Akinwumi Adesina, and the Director-General of the World Trade Oragnisation, Ngozi Okonjo-Iweala, had also warned at the same forum where Ahmed spoke, that Nigeria could be heading toward debt distress again.

In deviance from the warnings, the Finance Minister, President of the Senate, Ahmad Lawan, and many other public officials said Nigeria has no feasible alternative debt funding. The Senate President said Nigeria, being a poor country, had no option than to borrow to fund its programmes – a statement that foreclosed any hope of restraint in what has become a culture in the management of the national economy.

Successive administrations have bandied low debt-to-GDP ratio as a licence to borrow more. Interestingly, the government falls back to revenue, not GDP, to service or amortise debt instruments. Agriculture contributes over 20 per cent to the country’s nominal GDP. Sadly, the mainstay of the country’s revenue is neither agriculture nor manufacturing but oil, which contributes less than 10 per cent of the national output.

In the same logic, agricultural activities are majorly tax-exempted, implying that the sector is not a cash cow. This suggests that sectors that drive GDP, which historically informs government’s borrowing, do not provide the liquidity needed to service debt, economists have argued.

Dr. Bongo Adi, an economist at the Pan-Atlantic University had maintained that revenue consideration is a major factor, much more relevant than GDP, when analysing debt sustainability.

In 2020, which is still the most recent complete data on economic performance, the government spent N2.43 trillion, which was 71 per cent of the amount available for budget funding, on debt servicing. This was contained in the budget implementation report released by the Ministry of Finance, Budget and National Planning a few weeks ago. The overall figure was a modest deceleration from 99 per cent recorded in Q1 2020 when the government earned N950.56 billion and incurred N943.12 billion on debt-servicing.

As at September last year, the debt servicing to revenue ratio of the running budget was 65 per cent. The Federal Government had spent N2.57 trillion servicing debt within the period its earned revenue was N3.95 trillion.

David Adonri, Vice Chairman of Highcap Securities Limited, said the near-70 per cent debt servicing to revenue ratio and the fact that the government is refining some existing debt obligations indicates that the country’s debt situation is already in crisis.

“When debt gets to the level we are in now, there is a crisis. When your debtor has to raise a new debt instrument to settle the previous one, the country is tending towards sovereign default. And that is alarming,” he said.

Adonri said the government must rationalise its expenditure and stop ‘over-trading’, which he said has no real value other than helping the government to score a political point.

“We are already in a debt trap due to the recklessness of the government. And the government is going further. There is a clear signal that the current debt is not sustainable. The government must rationalise its spending and look inward for funding. It has to cede certain responsibilities to the private sector to prevent a situation where external partners would not have confidence in us and all our transactions will be cash-based. It can actually get to that stage, and happens soon if we don’t take urgent steps to remedy the situation,” the economist noted.

Also speaking, Prof. Godwin Owoh, a debt management expert, said the government is excessively carried away by the desire for mechanical infrastructure growth. He insisted that every society that intends to grow inorganically – growth that is not supported by the expansion in the incomes of households – falls into the mess the country is currently in.

According to him, the country will still achieve much-needed sustainable development if the government concentrates only on fighting corruption and insecurity while allowing the economy to drive itself.

“We don’t need that bogus infrastructure. Who will use the infrastructure when most people are hungry? Provide basic infrastructure and allow the economy grow organically. That will create a reasonable surplus that will drive further growth. Every state wants to have an airport. What is the need?” he said, adding that research has established that the growth of conduction has a positive correlation with the level of corruption in a society.

He insisted that the infrastructure Nigeria borrows to deploy is not supported by the growth of household income, noting that “expensive outlay does not lead to development” but that development happens when household incomes improve on a sustainable basis.

Prof. Sheriffdeen Tella of the Olabisi Onabanjo University aligned with Owoh’s argument, saying that the government should prioritise health and education while scaling down investment in road and airport infrastructure. The scholar said the persistent uncertainty around revenue makes the times more “precarious.”

“Government should also align the cost of governance with the economic realities. We cannot continue to run a bogus structure while we continue to borrow money. In delivering infrastructure, we can also explore public private partnerships (PPP); that is for essential infrastructure. In reality, we can do without some of the infrastructure till when the economy improves and we have the capacity to execute them,” Tella said.

Unfortunately, bureaucrats and public office holders do not want to bite the bullet even in the face of dwindling public fortune. The 2022 appropriation is believed to have been padded by the National Assembly to the tune of 0.7 trillion for selfish interests. As the year drew to an end last year, ministries, departments and agencies (MDAs) engaged in activities, including retreats, workshops and seminars, considered by many as frivolous as they were under pressure to deflate unspent allocation ahead of new budget approval. Tella said this behaviour is a major leakage the country must deal with to enhance probity in public office and strengthen fiscal stability.

While debt servicing is rising and increasingly sapping the entire retained revenues of the government, incomes are falling. For instance, a total of N3.42 trillion, N1.4 trillion (41.2 per cent) oil revenue and N2 trillion (58.8 per cent) non-oil revenue, was received to fund the 2020 budget. The amount received was N1.9 billion or 36 per cent short of the amount contained in the year’s amended annual revenue estimate and N701.8 billion (17 per cent) less than the N4.1 trillion recorded in 2019.

Add to this complication is the fiscal deficit, which is rising at an alarming magnitude. The Federal Government recorded an all-time high fiscal deficit of N6.6 trillion in 2020 – an equivalent of 14.2 per cent of the 2020 GDP. The amount was also N2 trillion, which is 43.2 per cent, higher than the projected N4.6 higher and 57 per cent above the 2019 deficit. The shortfall was partly financed through domestic borrowing to the tune of N2 trillion.

A senior fellow at the Global Governance Institute, Brussels, Belgium, and ex-Nigerian diplomat, Ejeviome Otobo, said “Nigeria needs major reform to up its taxes from its current seven per cent to GDP to catch up with the rest of African countries, which averages 18 per cent.”

The World Bank and the International Monetary Fund (IMF) have severally described the country’s tax as paltry considering its economic potential. The advisories have underscored historical overreliance on unstable oil incomes, and the tendency towards borrowing when there are shocks. In a policy document on Nigeria, the IMF said major tax reform was critical and inevitable as the country looks forward to a resilient recovery.

Currently Nigeria’s per capita public debt, the current officially declared debt translates to N190, 300, which is 53 per cent or over half of yearly minimum earning of a civil servant. This amount is the nominal amount the government has incurred on behalf of every Nigerian, including 23 million unemployed citizens. But Okonjo-Iweala had said that the real cost of Nigeria’s rising public debt is the inability of the country to fund projects that could positively affect the socio-economic life of an average citizen.

Amid disturbing and growing debt burden, the government contemplates total fresh loans of over N15 trillion in the 2022 – 2024 Medium-Term Expenditure Framework/Fiscal Stability Paper (MTEF/FSP). Already, N6.25 trillion, or approximately 3.39 per cent of the GDP was captured in the original 2022 budget. The amount is slightly above the three per cent ceiling prescribed in the Fiscal Responsibility Act of 2007 (FRA). The huge shortfall, which Adonri, an economist and stockbroker, said is driven by the desire for big government, is to be funded with fresh borrowings and privatization.

With the appropriation raised by 4.5 per cent, from 16.391trillion to 17.126 trillion, the estimated fiscal deficit would have also adjusted upward. In 2018, an estimated deficit of 1.95 trillion almost doubled at the end of the fiscal year to N3.64 trillion. That has been the trend in recent years, with much of the shortfall being financed by a supposedly temporary window offered by WMF.