Clearly, the sharp increase in Nigeria’s public debt in the last decade, especially under former President, Muhammadu Buhari, was a source of concern for most financial experts and analysts. For instance, in a report released in May last year, entitled, “The Economic Legacy of the Buhari Administration,” the civic tech organisation, BudgIT, lamented that the former president plunged the country into a huge debt during his reign.
Buhari’s debt legacy
It said: “According to the Budget Office, between 2016 and 2022, the Buhari government raised total revenues of N26.67 trillion and expended N60.64 trillion, leaving a deficit of N33.97 trillion. “The gaping hole was financed with FG domestic debt, which rose from N8.84 trillion as of December 2015 to N44.91 trillion as of June 2023, while external debt rose from $7.35 billion in December 2015 to $37.2 billion in June 2023. “This excludes support provided by the central bank amounting to N25 trillion.
Ultimately, President Buhari moved Nigeria’s debt profile from N42 trillion to N77 trillion. This has had attendant effects on debt servicing, which rose from N1.06 trillion in 2015 to N5.24 trillion as of 2022. In fact, under President Buhari’s administration, the debt-service-to-revenue ratio grew from 29 per cent to 96 per cent.” Given the foregoing, there was the view in some quarters that Buhari’s successor, President Bola Tinubu, who assumed office on May 29, last year, would take steps to tackle the crisis.
Tinubu’s vow
Indeed, while declaring open the annual conference of the Nigerian Bar Association (NBA) in August last year, President Tinubu declared that his administration would not continue with the practice of using 90 per cent of its revenue on servicing the country’s external debt. He said: “Can we continue to service external debts with 90 per cent of our revenue? It is a path to destruction. It is not sustainable. We must make the very difficult changes that are necessary for our country to get up from slumber and be respected among the great nations of the world.”
Also, the Attorney-General of the Federation (AGF) and Minister of Justice, Mr. Lateef Fagbemi, echoed Tinubu’s views at an event for legal practitioners in November last year. He warned that Nigeria’s rising debt profile poses a serious danger to the country’s economy.
Fagbemi said: “I also need to comment on the increasingly rising debt profiles of government at all levels, which pose serious danger and challenge to our national economy and existence as an independent nation. “The Federal Ministry of Justice has, against this backdrop, initiated a collaborative framework with specialist firms to enable legal officers involved in drafting MoUs and other forms of binding agreements acquire required skills to identify possible areas of dispute or liability, which could lead to avoidable litigation or arbitration costs and judgement debt. “We are willing to extend the support to legal officers in the various states in order to strengthen their capacities in this regard.”
PwC’s projection
Similarly, in its 2024 Nigeria Economic Outlook report released in January, professional services firm, PwC Nigeria projected that the country’s debt service could rise from N8.25 trillion in 2024 to N9.3 trillion in 2025 and further to N11.1 trillion in 2026. It noted that: “With a high debt servicing to revenue ratio, the government aims to increase domestic debt in 2024 to meet its deficit funding requirements.”
According to the firm, the shift towards more domestic borrowing could impact the private sector, as government credit constitutes 37 percent of net domestic credit, which saw a 28 per cent increase from January to September 2023. It also pointed out that the country’s deficit grew by 370 per cent from 2015 to 2023, which has led to a high debt and debt servicing profile.
“Though debt stock to GDP is comparatively low at 37.1 per cent, the debt servicing to revenue ratio remains high at 124 per cent as of the first half of 2023. In 2024, the government aims to reduce the budget deficit to around 3.9 per cent (N9.18 trillion) of GDP, down from 6.1 per cent in 2023, through reduced spending,” the PwC report said.
Furthermore, it stated that an increase in debt concerns could to Nigeria’s credit ratings being downgraded thereby leading to an increase in the cost of international funds for the country. “This may increase the demand pressure on forex to meet future FX debt service obligations. This is evident in the decline in capital importation from $24 billion in 2019 to $2.8 billion as of Q3’23,” the firm stated.
Obi’s concern
In addition, following the Debt Management Office’s (DMO) release of data in March, which showed that Nigeria’s total public debt rose by 10.73 per cent or N9.43 trillion to N97.34 trillion in the fourth quarter of 2023 compared to N87.91 trillion recorded in the third quarter last year, the presidential candidate of the Labour Party in the 2023 general election, Peter Obi, expressed concern over the country’s surging public debt.
Specifically, Obi described as dangerous, the use of nearly N10 trillion to service what he termed unproductive debts. As the top politician put it, “I remain concerned about our borrowings, considering their galloping situation over the years, and its concomitant effects on the economy. “More worrisome is the fact that there has been no corresponding visible usage or investments as required by the law, to show their impact on the nation.
“At the end of the second quarter (Q2), of 2023, our debt stood at N87.9 trillion, which was very disturbing to us, because we were at a loss on what we did with the huge debt, especially the over N30 trillion ways and means borrowed by the last administration, which for me, would have been the end of borrowing without any visible and corresponding investment that will benefit the nation.
“Even more worrisome is that between the end of the third quarter (Q3), and the end of the fourth quarter (Q4) of 2023, about N10 trillion was added to our debt profile, which has now taken our debts to N97.3 trillion, again, without any corresponding visible and verifiable utilisation of such debts, to the and best of my knowledge, is the highest ever borrowed in one quarter. “Last year, 2023, our total debt service for domestic debts stood at N4.4 trillion and that of external debt service was $3.5 billion, which is about N4.9 trillion.
In effect, approximately N10 trillion is now set aside to service unproductive debts. “The implication is that what we borrowed in a quarter about N10 trillion and what we spend on debt service, which is also about N10 trillion are each more than the combined budgetary allocation for the four highest priority areas, which are; defence (N3.25 trillion), Education (N2.18 trillion), Health (N1.33 trillion) and Infrastructure (N1.32 trillion).”
Interestingly, in explaining why the country’s total public debt rose by N24.33 trillion within three months – from N97.34 trillion in December 2023 to N121.67 trillion as of March 31, 2024, the DMO stated that the increase was from new borrowing to part-finance the 2024 Budget deficit and the securitisation of a portion of the N7.3 trillion Ways and Means advances at the CBN, adding that “whilst borrowing, as provided in the 2024 Appropriation Act, will continue, we expect improvements in the government’s revenue to enhance debt sustainability.”
Low tax revenue to GDP ratio However, New Telegraph reports that in its Nigeria’s 2024 Article IV Consultation staff report released last month, the International Monetary Fund (IMF) stated that fiscal policy in Nigeria was hindered by one of the “lowest revenue takes in the world of 9.4 per cent of Gross Domestic Product (GDP) in 2023.” The Fund said that the tax revenue to GDP ratio of 9.4 per cent recorded by country in 2023 was one of the lowest in the world as well as the African region. Commenting on the ratio, the IMF’s mission chief for Nigeria, Axel Schimmelpfennig, said:
“In 2023, Nigeria collected 9.4 per cent of GDP in revenues. That’s one of the lowest ratios that you see in the world and also on the continent. “What it means really is that the government has too few resources for social and development spending on health, on education, on infrastructure, etc.”
Also, while projecting that Nigeria’s public debt to GDP ratio will reach 46.6 per cent in 2024, and 46.8 per cent in 2025, the IMF in its Fiscal Monitor for April 2024, stated: “In Nigeria, the debt-service burden amounts to around 56 percent of tax revenues. Such high debt-servicing costs prevent low-income developing countries from spending more on essential services and critical investment to improve economic resilience and reduce poverty.”
Conclusion
The consensus among financial experts, over the weekend, was that while Nigeria may still have a healthy debt to GDP ratio, unless the government urgently and significantly improves revenue generation, the country may not be able to prevent its fiscal crisis from getting worse.