Nigeria’s looming debt challenge, a cause for concern?

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Speaking at a media parley organised by the First City Monument Bank (FCMB) Plc in Abuja, CEO of RTC Advisory Services, Mr. Opeyemi Agbaje, in a presentation ‘The Nigerian Economy and Financial Sector in 2018,’ warned that the government’s debt led strategy is a disaster waiting to happen, BENJAMIN UMUTEME reports.
Nigeria existed recession in the third quarter of 2017, after sliding into recession as a result of the fall in the global price of crude oil after it hit a high of $114 per barrel in June 2014.
The outcome of that was that all the sectors of the economic had negative growth as over 60 per cent of its revenue had been wiped out.
And when it was announced by the National Bureau of Statistics that the country had left the woods of recession it was greeted with much and as the Minister of Finance, Mrs. Kemi Adeosun did put it mildly, the country had ‘technically’ existed recession.

Nigeria’s economic review
Over the years, the country has created an economic structure where about 80 per cent of its revenue comes fromsales of oil. It was expected that the monies from the sales of oil would be channelled into development of other sectors of the economy
Alas, that has not been the case has over five decades Nigeria’s economy continues to be at the mercy of oil price volatility. This, analysts have put at the door step of successive governments’ inability to consciously develop Nigeria’s infrastructure. The result is that we are now faced with a huge infrastructure challenge which would take an annual investment of over $10 billion dollars over the next ten years to address.
The economy has been structure in such a way that it continues to benefit from higher oil prices (in one pocket-federal and sub-national revenue streams) and suffers in the other pocket through the oil subsidy scheme.
At the best of time, the fuel subsidy scheme destabilizes downstream oil sector operations and limited growth and efficiency in the sector; in the process delivering low value-for-money. The result is the lack of investment in the sector by investors knowing that they were not likely to ripe from where they want to sow.
“The problem is worse at this time because there is no formal oil subsidy scheme, and the “subsidy” is being arbitrarily applied by the Nigeria National Petroleum Corporation (NNPC) in a manner that is not transparent, probably unconstitutional and prone to corruption,” Mr. Agbaje posited.

Figures don’t lie
A look at the post recession figures albeit the third quarter Gross Domestic Product (GDP) report released by the National Bureau of Statistics (NBS) revealed one things: oil sector versus the others.
While the oil sector existed recession -helped by oil increase in oil price from a low of less than $30 a barrel to close to $70-growth in the other sectors have rather been minimal or in some cases have continued to witness negatively growth.
According to the statistics bureau in the report, the agricultural sector in the third quarter of 2017 grew by 3.06% (year-on-year) in real terms, a decrease of -1.47% points from the corresponding period of 2016 and an increase of 0.05% points over the preceding quarter.
Apart from the sector, it not the same story for the manufacturing sector as real GDP growth in the sector for Q3 of 2017 was -2.85% (year on year), higher than the same quarter of 2016 by 1.53% points and -3.49% points lower than rate recorded in the preceding quarter.
The Transportation sector in real terms contracted by -6.25% in Q3 of 2017. This rate represented a decline of -6.98% points relative to the same quarter of the previous year and a decrease of -0.07% points relative to the preceding quarter.
For the finance and insurance sector, growth in real terms totaled -5.96%, lower by -8.61% points from the rate recorded in 2016 third quarter and down by -16.42% points from the rate recorded in the preceding quarter while the Real estate sector in third quarter 2017 stood at -4.12%, higher from growth recorded in 2016 third quarter by 3.25 % points and lower by -0.59% points relative to second quarter.
It was the same story for Trade sector as growth in real terms year on year growth stood at -1.74%, which was -0.35% points lower than the rate recorded one year previous, and -0.12% points lower than in the preceding quarter. This even as in real terms, the solid sector grew by 25.44% (year-on-year) in the third quarter of 2017. Compared to the third quarter of 2016 and second quarter 2017, it was higher by 48.09% points and 21.93% points respectively.
In the same vein, the Administration&support sector, in real terms recorded a growth rate of 0.68 % (year-on-year), an increase of 0.67 % points from 2016 while Real growth in Education year-on-year stood at -1.22% in Q3 2017; a decrease of -1.11% point from the figure of Q3 2016.
For Agbaje, the other sectors might begin to feel the diffusion effect of the GDP growth from oil this year as the government implement policies in other sectors.
“The Nigerian economy has benefited from rising oil prices and higher production and several macroeconomic indicators are trending positively,” he said, noting that there are however sufficient negatives including persistent low manufacturing performance, sharply rising unemployment, high inflation and fuel subsidy conundrum,” he said.

Faulty debt strategy?
As Nigeria’s foreign debt has risen to hit the pre-2005 levels of $15 billion.
The federal government in order to cutdown on interest paid for loans and to free up space for local bisinesses to access loans from Deposit Money Banks (DMBs) resorted to focus on foreign loan to finance its infrastructures.
It will be recalled that the Debt Management Office (DMO) had in December, “planned external financing of $2.5bn is for the refinancing of maturing domestic debt obligations of the Federal Government. It.
According to the agency, “The purpose is to rebalance the Federal Government’s debt portfolio by increasing the external component, while reducing the domestic component in line with Nigeria’s Debt Management Strategy, which has a target of 40:60 ratio for external to domestic debt from the current position of about 25:75, respectively.
But the CEO of RTC Advisory Services has insisted that this new debt focused strategy is faulty.
According to Mr. Agbaje, it portend as a looming fiscal challenge for the country.
He noted as a major flaw the government’s the decision to adoption a debt-led strategy rather than one that is investment-led.
He noted that with the 2019 general election ahead, the debt situation would worsen, even as he added that resort by the country’s economic managers to debt-led strategy turn out sub-optimal results.
Agbaje noted that such sub-optimal choices were direct consequences of pandering to political considerations.
Many analysts have questioned the rationale behind the government’s action especially as it allocated over 30 per cent of its 2018 budget to debt servicing. According to figures from the budget over N2 trillion has been set aside for debt servicing.
For President hopeful Jaye Gaskia, the government’s plan for debt servicing is unsustainable. In the same vein, Mr. Agbaje wonders what will happen to the debt servicing plan if the price of oil suddenly falls.
Rather than focus on a debt led strategy to grow the economy, analysts have urged the government to focus on attracting foreign investors that would bring the much needed dollars into the country. As economist, Mr. Friday Efih, told Blueprint on phone, “the government will not need to borrow to fund the budget.”

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