NIGERIA'S RISING EXTERNAL DEBT
Seven years after Nigeria exited from the Paris and London club of creditors that resulted in the cancellation of a substantial portion of our national debts, latest figures show that Nigeria's economy may be threatened by another external debt overhang. According to statistics sourced from the Debt Management Office (DMO), the custodian of the nation's debt stock, Nigeria's total debt profile now stands at $44 billion. This is the highest debt profile since 2007. The amount is $5 billion higher than the total debt stock at this time last year.
This development is disturbing and takes Nigeria an inch closer to the 'crisis level'. However, it is still within the globally acceptable threshold of 40 percent of our Gross Domestic Product (GDP), which plays an important role in economic growth. At present, Nigeria's economy is reportedly growing at 7.26 percent of the GDP, a healthy sign though for the economy.
Nonetheless, the current debt stock implies that government is borrowing more money than it is paying out. This could, in the long term, harm the economy if the debts taken are not channeled into productive areas that can yield dividends to repay the loans.
A breakdown of the $44 billion debt shows that 86 percent of the total borrowing is in local currency, the Naira. Federal Government bonds constitute the largest of the debt instrument, while 13 percent of the total external debt comes from concessional lending to bilateral creditors. On paper, the debt stock is unsettling and calls for serious concern, even though the Director-General of DMO, Dr. Abraham Nwankwo, has allayed fears that the figure does not signpost any danger to the economy.
Speaking in the United States recently at an investors' forum, Dr. Nwankwo maintains that other economic indices such as the GDP ratio of Nigeria which currently stands at 17.83 percent, as well as the volume of economic activities in the country, are positive signs that Nigeria's economy is in good state, and therefore, the debt stock is not something that investors should worry about.
We however disagree with such exultant optimism. On the contrary, we maintain that there is everything to worry about our spiraling debt profile. The fact is that our government remains profligate with credit facilities taken, both at home and abroad. Figures in the last five years attest to the fact that our external debt has been rising steadily, but the economy is growing sluggishly. For instance, in 2007, the external debt was $22 billion.
This rose to $23.228 billion in 2008, $25.8 billion in 2009, $32 billion in 2010 and $39.7 billion in 2011. All of this represents a 'red flag' on our economy and portrays government as a big spender, if not reckless with money.
It must be said that our rising debt profile runs contrary to promises by the present administration not to put Nigeria in another harm's way by way of borrowing. There seems to be no deliberate effort to prudently manage the loans taken. Many Nigerians are at a loss as to how and where these credit facilities were spent.
We recall that in 2005 when Nigeria's external debt reached a crisis level of $36 billion, the federal government, through the initiative of the present minister of Finance, Dr. Ngozi Okonjo-Iweala, paid $12 billion to the Paris club of creditors to obtain a debt relief of $18 billion. With the benefit of hindsight, the present debt stock clearly negates the huge sacrifices Nigerians made to exit from its foreign creditors. What it all means is that government is yet to curtail its propensity to borrow and spend at will.
Admittedly, there is nothing prima facie wrong with borrowing, whether domestic or external. But we have always insisted on the judicious use of the funds borrowed. There is hardly any country in the world that does not borrow. What is of critical importance is the utilisation of such loan. Our advice remains that government should borrow cautiously, and spend prudently.
The present external debt profile ordinarily should not have raised any concern if government had been prudent with previous credit facilities obtained from external financial institutions. The problem remains that there is no due diligence and proper supervision of the loans taken. This should be a big challenge to the Finance Minister and Coordinator of the economy, Dr. Okonjo-Iweala. She is in a more vantage position to know why our public debt continues to rise without a corresponding increase in the fortunes of our economy. We believe that Nigeria still needs fiscal discipline, accountability and transparency in the management of public finances and our national debt profile as a whole. Loans are taken primarily for development purposes, and not for consumption.