Nigeria is on a forward match to debt trap. Incessant urge by the federal and state governments to borrow is alarming. As of June 30, 2019, Nigeria debt stood at 25.70 Trillion Naira ($83.88 billion) according to the Debt Management Office of Nigeria. External portion of the debt stands at $27.16 billion while domestic portion of the debt is $56.72 billion. International Monetary Fund (IMF) project Nigerian government debt to reach 31.4% of GDP in 2020. Nigeria Gross Domestic Product is about 130 Trillion Naira.
When APC government won election in 2015, Nigerian debt was about 11 Trillion Naira and is now 25.70 Trillion Naira after 4 and half years of governance. What should scare Nigerians is that the Federal government just sent another loan request of approximately $30 billion to the Senate for approval. The new request will basically increase Nigeria debt burden to $113.88 billion. Nigerian government keeps rationalizing the borrowing by asserting that Nigeria GDP to Debt ratio is very low. IMF projects that Nigerian debt to GDP ratio will reach 31.4 percent by 2020. It is true that Nigerian debt to GDP ratio is low, but it is misleading to use GDP to Debt ration as criteria for borrowing. GDP is a general concept that lacks specificity, thus not a good idea to base amount of money a country should borrow on that.
Revenue to Debt Service ratio is a better barometer to use in determining the amount of debt any country should be able to sustain since it is very specific and easy to measure and account for on a yearly basis. Most governments know how much they earn and spend each year. African Development Bank (AFDB) which is headed by a Nigerian in their 2019 economic outlook stated that Nigeria spends over 50% of the country’s revenue each year in Servicing Nigeria foreign debt. What this means is that over 50 Kobo out of every Naira Nigeria earns as revenue from oil and non-oil sales is used to pay interest on Nigeria debt and in some cases renegotiation of the debt. Bear in mind that the new loan request is not included. So, the Federal government must cover recurrent and capital expenditures with less than 50% of Nigeria revenue. This is unsustainable and will inevitably bankrupt Nigeria. What is likely to happen is that when this government leaves office, the next administration will find out that the Country will not have nearly enough fund to run the government. The new administration will have no choice but to borrow more money to keep the country afloat which will lead to more debt and more debt service. The long-term outlook for Nigeria is scary if this endless borrowing continues.
The next question is what are all these borrowed money used for. A lot of these fund are been used to build railway tracks across Nigeria. Building railway is a very expensive undertaking. How many people will the railway serve? Railway project is good, but infrastructure should be based on priority. Lack of transportation has not been a major problem for Nigerians. Rather, Nigerians have consistently complained of bad roads. The money used for these railway tracks could have been used to rebuild all or most Nigeria roads especially federal roads which will serve more Nigerians. Railway can wait for another time when the country is richer. Light rails are more helpful in big cities such as Lagos, Kano, Onitsha and other congested major cities since it will help decongest the traffic within those cities. They should not assume that construction of railway will be the priority of the next administration. Nigeria must remember that all social amenities, Industries and corporations built and ran by various state and federal government after Nigeria independence was ran into the ground. That is what happened to government run railway corporations, banks, steel companies, Nigeria airways, NITEL, NEPA, Refineries, Textile factories etc. Corruption and other social malady bedeviling the country slowly killed them all. To be fair to Nigerian government, government run enterprises in developed and developing countries are largely inefficient.
Debt accumulation is a slippery slope that is always difficult to get out of. Uncontrolled debt leads to default and bankruptcy. It is worth noting that when democracy and civilian regime was restored in 1999, Nigeria’s external debt was about $18 billion which was considered even then to be excessive and unsustainable because 40% of our yearly revenue are used to service the debt. Former president, Mr. Obasanjo and his Finance minister, Mrs. Okonjo-Iweala managed to get foreign creditors to forgive about $12 billion of the debt, and his government subsequently paid off the balance with a warning that successive government must never allow such debt to be accumulated in the future. Nigeria moment of truth is fast approaching if urgent step is not taken to arrest the situation.