The figures are being thrown around in news articles and broadcasts. Analysts have been telling of its consequences – the repeatedly depressing rates of unemployment and inflation, low GDP per capita, lean spending on building, maintenance and expansion of available infrastructure, all culminating in a youth restiveness and crime, extreme incidences of violent deaths, poorer standards of living, financial uncertainties and a general state of hopelessness. These are the negative consequences of a country on the brink of bankruptcy due to an unhinged appetite for loans and irresponsible use of same.
Already, the huge investment lost to the repayment of debts is taking its toll on the citizens and the economy. With an unemployment rate of 23.1 per cent, an inflation rate of 11.85 and a 1.95 per cent GDP growth rate, Nigerian leaders at the federal and state levels have already mortgaged the future of the emerging generation for their wanton greed of today and instead bequeathed debts to the same younger generation they have incapacitated and deprived of the mental initiatives and financial wherewithal to pay the debts.
Nigeria has borrowed N20,389.9 billion in local and external debts in the past 5 years. Nigeria owes USD66.7 billion presently in foreign debts and N20,425.8 billion as local debts. These make a total of N44,571.2 billion going by the exchange rate quoted for 27th January 2020 at N362 to 1 dollar. Yet, while the country still battles with the severe austerities resulting from its heavy debt burdens, many wonder why the federal government and respective state governments are not relenting in their wild quest to outdo one another in the shameful debt race.
The International Monetary Fund (IMF) has prescribed a debt level for frontier economies at 50 per cent of GDP. This means borrowing countries should have at least a 50 per cent repayment capacity of its GDP as fiscal revenue. Nigeria’s current level is 24 per cent of GDP. Yet, the offices of the President and State Governments are still bent on securing more loans.
A right-thinking government in Nigeria also would have been more cautious in hustling for more loans at this time considering its debt service to revenue ratio. The World Bank prescribes debt service to revenue ratio of not more than 22.5 per cent. However, as of 2020, Nigeria’s debt service to revenue ratio is over 60%. This means for every N100 earned, the country spends N60 in servicing debt.
With a population currently estimated at over 200 million, Nigeria is saddled with a huge debt burden with a sickly lean purse to bear it. This is due to the government’s weak revenue generation capacity which stands in sharp contrast to its strong appetite for debt finance of the profligate lifestyles of its leaders. Placing the debt at par with national and international realities, it doesn’t appear that Nigeria has the wherewithal to service its current debt.
Nigeria’s revenue, when compared to GDP, is incredibly weak. IMF report notes that “at 3-4 percent of GDP, Nigeria’s non-oil revenue mobilization has been one of the lowest worldwide, reflecting weaknesses in revenue administration systems and systemic noncompliance.” But how can the government get more taxes from economic agents, individual and corporate, who are operating at sub-optimal levels? As proof of declining aggregate incomes, GDP growth rate of the country at 2.29% (2019) indicates a fall from 2014 by 4.04% and a projected figure of 2.64% in 2024.
However, despite the fall in the GDP growth rate, the population growth rate keeps increasing. A population growth rate of 2.6% puts Nigeria as the 7th largest in the world and has a current estimate of 206 million people. A growing population means that the government has the responsibility of investing more in infrastructure and creating employment opportunities. Debt servicing has however deprived the citizens of funds to execute major investments, culminating in job losses and consequently low living standard.
These gloomy pictures of the country’s balance sheet correlate with the abject poverty in the country with Nigeria’s international profile as the poverty capital of the world. The debt burden has continued to take its toll on the economy as the nation spends hugely in servicing it. The approved 2020 budget committed 23.6% of its total budget to debt servicing alone.
There is, therefore, need for the government to seek the diversification of the economy away from oil as this will generate more revenue which will reduce the effect of a downtrend in oil revenue which usually calls for debt. In order to safeguard the future, public borrowing should strictly be for capital projects which have a positive internal rate of return, at least as high as the interest rates on the loans, coupled with the capacity to create jobs.
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