The International Monetary Fund (IMF) might be mistaken in some quarters for a busy body that could even swallow pain relief tablets for someone else’s headache. Last week, IMF complained about everything from Nigeria’s clumsy management of its lean Sovereign Wealth Fund (SWF), the increasingly unwieldy national debt to the fraudulent and wasteful spending on petrol subsidy.
IMF is particularly worried about Nigeria’s ballooning national debt. The rulers of Nigeria are not worried. They contend that Nigeria’s foreign and domestic debt of N24.3 trillion is a scant 22 per cent of its gross domestic product (GDP) and that no one should bat an eye lid over it. They may even draw an analogy with America.
The United States of America, the world’s largest economy is equally the world’s biggest debtor. America’s $22 trillion national debt is about 105 per cent of its GDP of $19.3 trillion. The IMF is not worried about America’s debt which is clearly larger than its GDP. It is worried about Nigeria’s debt because unlike the U.S. which has an enormous industrial muscle and a highly diversified economy, Nigeria runs a one-handed economy that depends solely on oil. No one in Nigeria has any control over oil price. America controls the prices of its finished goods and has considerable leverage over oil prices. Besides, even as Nigeria’s debt to GDP ratio looks deceptively low at 22 per cent, the cost of servicing the debt is unacceptably high.
While the U.S. borrows at anything below 2 per cent, Nigeria’s domestic debt instruments attract a calamitous rate of 18 per cent. Because of its low credit rating as a high risk borrower, Nigeria’s foreign debt instruments, like the Eurobonds attract interest rate of about 7 per cent. Nigeria therefore borrows at about 300 per cent the rate at which the U.S. borrows.
Nigeria’s problem is more of debt servicing, than the amount being owed. In November 2018, the IMF warned that Nigeria’s debt service gulps 50 per cent of its revenue. The economy can no longer sustain that.
The argument by the IMF is that Nigeria’s economy is so susceptible to external shocks and that it could face catastrophic destabilization if the national debt balloons out of proportion.
Nigeria borrows close to N60 billion monthly to pay the salaries of federal civil servants.
The country’s problem is corruption, high cost of governance, low revenue mobilisation and uninhibited population growth in the face of sluggish economic growth.
The workforce being financed with borrowed funds is made up largely of ghost workers and thousands of idle hands that contribute next-to-nothing to the economy. In fact, the federal civil service needs less than one quarter of its current workforce to function effectively.
Besides, Nigeria’s tax revenue base is very narrow. Out of a working population estimated at 88 million, less than 30 million are in the tax net. Most of the country’s tax is collected at source from the salaries of workers in the civil service and the organized private sector.
Nigeria’s unwieldy informal sector is a major impediment to tax collection. The informal sector constitutes close to 70 per cent of the nation’s work force. Thousands of multi-millionaires and hundreds of billionaires in the informal sector are not in the nation’s tax net. Nigeria therefore has an abysmally low tax to GDP ratio of 5.8 per cent.
Rigid economic regulation and massive decay in infrastructure has drastically reduced the inflow of foreign direct investments (FDIs). In 2018, South Africa’s economy that was deep in recession attracted $7.3 billion in FDIs. That is what pushed the economy out of recession. Nigeria’s excessively regulated economy attracted a scant $2.2 billion in FDIs. Ghana on the other hand garnered $3.3 billion.
The Nigeria Customs Service (NCS) is perhaps the biggest obstacle to Nigeria’s bid to boost revenue. The federal government is partially responsible for the unfathomable corruption that diverts more money into the pockets of customs officials than public coffers. It has turned deaf ears to the World Bank argument that high import tariffs encourage smuggling.
The dollar value of Nigeria’s import duties revenue has plummeted precipitously. No one in the federal government has lifted a finger in protest. The drop is partially caused by the unacceptably high tariff on rice and new vehicles imposed by the federal government. Those imports are now diverted to Cotonou Port in Benin Republic and smuggled into Nigeria with the connivance of NCS officials.
The number of trailers entering Nigeria from Benin Republic between 1am and 5am in a normal day is a shocking testimony to the billions of naira the federal government losses to its tiny neighbour and corrupt customs officials.
Out of the 3.2 million metric tons of rice that entered Nigeria in 2018, only 60, 000 tons came through official channels that import duties were collected.
A 50 kilogram bag of rice sells for N9, 500 at the border town of Idi-Iroko. Smugglers bribe customs officials, smuggle rice into Nigeria and sell at the open market price of N16, 000.
If import duties are collected on the 1.2 million vehicles that enter the country annually, government would have no reason to incur debts that attract double digit interest.
Nigeria can avoid the mountain of debt the IMF is complaining about if it blocks the leakages that is lining the pockets of customs officials and the government of Benin Republic.
