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Nigeria’s debt crisis is solvable

 UNREMITTINGLY, global agencies continue to warn Nigeria of the dangers of its mounting debt; and just as unrepentantly, the government persists on a two-track trajectory of acquiring more debt, and simultaneously downplaying the peril. Two alerts in succession by the World Bank, one that debt servicing would continue to increase in the next five years and balloon to 160 per cent in 2027, and another that high repayment cost in 2023 could plunge the country into crisis, demand a change in strategy by the President, Major General Muhammadu Buhari (retd.).

The global bank’s Country Director for Nigeria, Shubham Chaudhuri, noted last week that the country’s interest payment to revenue ratio would continue to rise steadily. He said this would sustain the current stagnation and could send the economy spiralling to the bottom.

Moreover, in a presentation, the World Bank’s Lead Economist for Nigeria, Alex Sienaert, projected debt servicing spending to rise from 100.2 per cent in 2022 to 123.4 per cent by 2023, exceeding the reported 118 per cent spent on servicing debt in the first four months of 2022.

But despite the stark reality and the dangers of runaway debt, the government continues to delude itself that all is well. This is baffling. In one breath, the Minister of Finance, Budget and National Planning, Zainab Ahmed, admits that debt servicing is crippling, but in the same breath, repeats the regime’s mantra that “Nigeria has no debt problem, but a revenue problem.” She believes that since the country has not defaulted on repayment, nor rescheduled its debt, there should be no cause to fret.  Most experts disagree.

While the government tries to borrow its way out of bankruptcy, the World Bank says, “Borrowing more is not the solution: debts costs are rising rapidly, crowding out productive spending.” Besides, the government has failed to substantially raise revenue and solve its “revenue problem.”

The 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper estimated that the country’s debt service has gulped N6.16 trillion in 16 months, and there has been a 182.7 per cent increase from the N3.69 trillion budgeted for debt service in 2022. As of June 30, the total public debt stock representing the domestic and external debt stocks of the Federal Government, the 36 state governments and the Federal Capital Territory, was N42.84 trillion, according to the Debt Management Office. The comparative figure for March 30 was N41.6 trillion. Total public debt had reduced slightly from 23.7 per cent of GDP in March to 23.06 per cent in June.

Experts have long urged Nigeria to take some hard, proactive actions to free up its choked fiscal space and clear the humungous debt accumulated by the Buhari regime. These reforms are urgently required for the country’s revenue to exceed the government spending needs and free funds for infrastructure.

Buhari needs to cut the high cost of governance by scrapping over 400 out of about 600 federal ministries, departments and agencies as recommended by the Stephen Oronsaye-led Presidential committee on agencies’ rationalisation.

Despite his campaign promises to halt the importation of petrol and initiate an emergency programme to achieve self-sufficiency in domestic refining, figures obtained from the Nigerian National Petroleum Company and the National Bureau of Statistics indicate that the regime has spent about N16.9 trillion on the importation of 132.24 billion litres of PMS since 2015. In fact, Nigeria has relied overwhelmingly on petrol imports since 2015, perpetuating the prevailing cycle of waste and corruption.

The four dormant refineries should be privatised. Their ongoing and planned “rehabilitation” is another monumental waste. The sell-off must be accompanied by aggressively promoting private investment for a quick roll-out of new refineries and the total exit of the NNPC from the downstream oil and gas sub-sector.

Nigeria’s total external debt rose from $10.32 billion in June 2015, to $40.06 billion by June 2022. Since the Central Bank of Nigeria exchange rate as of June was N414.72, by implication, it will cost Nigeria N8.72 trillion to repay the $40.06 billion external debt.

The government’s borrowing from the CBN had risen to N23.77 trillion by October 2022, most of it through ‘Ways and Means.’ Again, this is fraught as it amplifies borrowing costs, being more expensive than other domestic borrowing lines. It is also illegal as it violates ceiling imposed by law.

There should be new measures to improve revenue, cut costs and waste and free revenue for productive and job-creating activities. The Lagos Chamber of Commerce and Industry, worried over the debt crisis, has suggested an urgent review of the funding thrust of the 2023 budget proposals “to emphasise equity financing and deemphasise debt financing.”

Buhari should stop the borrowing binge. He should infuse prudence in public finances. An estimate by The PUNCH indicated that the National Assembly has approved or received budgetary funding of N93.45 trillion from Buhari since 2015. Despite the increase in debt over the years, the government wants to increase salaries and estacode, and plans to borrow N8.4 trillion in 2023. Raising running costs at a time of hardship confounds observers. The NASS should halt the recklessness.

Nigeria desperately needs to attract Foreign Direct Investment by improving the operating business environment, improving its tax collection machinery and resolving the energy crises; the power sector quagmire should be resolved, as well as the irrational dependence on imported refined petroleum products.

The regime should sell recovered stolen funds and property, and privatise all state-owned commercial assets. There should be concessions to reputable international investors to run the airports, seaports and power transmission to instil efficiency, and new infrastructure and maximise their revenue-earning potential.

The NASS should repeal the restrictive Railway Act of 1955 that inhibits private investment in rail transport and liberalise the sector. Denial and delay portend danger; Buhari should act now.

Nigeria’s debt crisis is solvable (punchng.com)

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