The economic recession that hit Nigeria last year meant that desperate measures had to be taken in order to revive the country’s economy. One of these measures was increased public spending from the Federal Government in a bid to boost infrastructure and stimulate the real sector.
Unfortunately for the FG, the recession coincided (and was probably aided) by low fuel prices caused by crude oil glut in the international market as well as Niger-Delta militancy. Both have culminated in record low revenues for the FG. In order to actualize its recovery plan, the FG looked to borrowing as a solution. However, once the first Eurobond was over-subscribed 8 times over, the FG has been borrowing at an alarming rate. This is now becoming a source of worry to stakeholders who foresee greater problems to the economy.
The Central Bank
Arising from its Monetary Policy Committee meeting on Tuesday, the CBN expressed concern about the FG’s borrowing plan. A communique released at the end of the meeting reads
“The Committee was concerned that credit to government continued to outpace the programmed target of 33.12% for fiscal 2017, while credit to the private sector declined considerably far below the programmed target of 14.88%.”
Simply put, the FG is over-borrowing and not much of it is being used to develop the real sector.
The International Monetary Fund (IMF)
According to the IMF’s World Economic and Financial Surveys released Wednesday, Nigeria will at the end of 2017 been indebted to the tune of 23.3% of the GDP. To put this in perspective, Nigeria ended 2016 with a debt to GDP ratio of 18.6% while at the end of 2015, Nigeria’s debt to GDP ratio stood at 12.1%. Nigeria’s debt to GDP ratio would have surged by 100 per cent, from 12.1 per cent in 2015 to 24.1 per cent in a space of 3 years. Thus, for every N100 worth of goods produced or services Nigeria provides in 2018, N24.1 will be used to repay debts.
The World Bank
The World Bank has also sounded warnings about the high debt profile Nigeria has created on the past one year. According to Yue Man Lee, a senior economist at the World Bank office in Nigeria, the debt payment to revenue ratio coupled with possible reduced revenue earnings might render the country’s debt unsustainable. Thus, Nigeria has to increase its revenue base or work towards balancing the debt profile.
On the part of the FG, no one seems to be saying anything about how sustainable the borrowing is, but rather more and more requests for debts are being piled on the National Assembly. Will it be as many Nigerians fear, that the future generation will inherit a debt-ridden Nigeria?