The Central Bank of Nigeria (CBN) has finally joined the Babel of voices calling on the rulers of Nigeria to draw the breaks on the acquisition of loans as the country’s debts burden becomes manifestly unbearable
Rising from last week’s monetary policy committee (MPC) meeting, Godwin Emefiele, governor of the CBN, warned that Nigeria was getting back to the days before 2006 when its foreign debt portfolio stood at $32 billion.
Emefiele was sounding a rather belated warning. Three months ago, the International Monetary Fund (IMF) had warned that Africa’s largest economy was creaking under the weight of a crushing debt burden.
The 2019 Appropriation Bill is replete with tell-tale signs of cracks inflicted on the economy by Nigeria’s mounting debt. From a revenue estimate of N6.9 trillion, debt servicing would gulp down N2.14 trillion. That is something perilously close to 40 per cent of total revenue.
The irony of Nigeria’s debt burden is that most of the loans were raised for bread-and-butter expenditures that would never pay back the debt. The federal government borrows close to N60 billion monthly to pay its unwieldy wage bill.
The workforce that is financed with borrowed funds is made up largely of ghost workers and thousands of idle hands that contribute next-to-nothing to national economic growth. Economy watchers believe that the federal civil service needs less than one quarter of its current workforce to function effectively.
However, five years after the Goodluck Jonathan administration issued a white paper on the report of the Stephen Oronsaye Presidential Committee on Restructuring and Rationalization of Federal Government Parastatals, Commissions and Agencies, no one in the federal government has the political will power to effect the mergers and scrapings recommended by the committee.
Arguing that the cost of governance in Nigeria ranks among the highest in the world, the committee had recommended the reduction of federal government agencies from 263 to 161. The 102 agencies marked for scrapping are still gulping huge funds and doing nothing.
The consequence is an idle workforce funded monthly with huge debts. That explains why in the view of IMF, debt servicing gulps 50 per cent of government revenue.
Nigeria’s national debt profile pales into insignificance when compared to that of some developing and even developed countries. Nigeria’s external debt stands at $22 billion. When the domestic debt of N5.6 trillion is added to that, it climbs to $44 billion.
That amounts to 21 per cent of Nigeria’s gross domestic product (GDP).
On the contrary, the national debt of the United States of America (USA), the world’s largest economy, is 105 per cent of its GDP. The U.S. owes $21.8 trillion against a GDP of N19.3 trillion.
Brazil is a highly industrialized economy. However, it is still a developing country. Brazil’s national debt has crossed the $2 trillion threshold and now amounts to 70 per cent of the country’s GDP.
The national debts of the U.S. and Brazil may look intimidating but the two economies are founded on solid industrial base and are deep enough to sustain the debt profile.
Besides, the cost of servicing America’s mountain of debts pales into insignificance when compared to Nigeria’s debt service bill.
America borrows at anything below 1.5 per cent. Some of Nigeria’s domestic debts are incurred at a staggering 18 per cent interest rate. That explains why the federal government scrambled to raise foreign loans to service or pay off some of its burdensome domestic debts with jumbo interest rates. Domestic debt service would consume 80 per cent of the N2.14 trillion ear-marked for debt service in the 2019 Appropriation Bill.
Even the Euro Bonds issued by the federal government attract more than 300 per cent of what the U.S. pays for its debt instruments. Nigeria borrows from the international community at anything from seven per cent. External debts are clearly cheaper to service. However, the consequences of heavy external debt could at times be calamitous because of the volatile nature of the naira. If the naira tumbles precipitously in the foreign exchange market, the naira value of Nigeria’s external debt could simply double.
The problem with Nigeria’s mounting debt is that no one really sees what is being done with the funds so far raised. Besides, the infrastructure which the debt is used to rehabilitate simply lacks the capacity to pay back the debt.
The federal government funds railway rehabilitation with a chunk of the $11 billion it has raised in the last three years. However, the pace of rail development is agonizingly slow. Besides, the Kaduna-Abuja rail line which came on stream three years ago is running at a colossal loss. There is no way such venture could pay back the loans raised to develop it.
Part of the debt was invested in civil aviation facilities like terminal building rehabilitation at a time when Britain and other developed nations were privatizing their airports.
The truth is that the projects that Nigeria borrows recklessly to finance are better funded by private investors at build-operate-and transfer basis.
With debt service gulping 50 per cent of government revenue, Nigeria can no longer sustain its debt burden. Government must involve the private sector in infrastructure development. Nigeria has no business running refineries that chalk up billions of naira in monthly losses along with billions of dollars spent annually on fuel imports.
