Kemi Adeosun, Finance Minister
Kemi Adeosun, Finance Minister

It has been all over the tabloids; the Nigerian government’s intention to acquire debt by floating Eurobonds. And this hasn’t come without its fair share of cautionary remarks from various stakeholders. Even the IMF is telling us to be mindful of our debt accumulation; and rightly so.

In the Finance Minister’s defense, Nigeria’s debt to GDP ratio is relatively low, about 35 percent, compared to nations with debt to GDP ratio in excess of 100 percent. This reveals the Minister’s intent to keep the burden of debt repayment in the hands of national output and production; which is what our GDP essentially comprises of. In other words, your future hard earned labour and productivity will be responsible for the huge debt the government is accumulating today.

This would have been excused if the Nigerian government hasn’t shown over and over again a considerable capacity for fiscal irresponsibility. They make a hard case to trust. With a debt to revenue ratio of over 62 percent – high enough to not justify these debts – government is absolving itself of responsibility as there appears not be consideration to our debt to revenue ratio.

Relying on the GDP is a tricky thing. Chike that runs a business solutions outfit still incurs rising costs for fuel because he cannot rely on electricity to run his business.
Abdul that has a bottle water factory still has to buy diesel to run his company. So, even if GDP may no longer be negative, given these cost bottlenecks to expanding output, there is less possibility output will increase enough to force downward pressure on prices which in turn will spur effective demand and expand our GDP.

Plus, we have to accept there is a new regime in terms of nominal exchange rate that has practically doubled since the 2014 oil price fall. Except there is considerable structural change that can soften these exchange rate effects to cost of production in the country, prices will most likely remain inflated. As a result, aggregate demand will be cautious to gain momentum.
Let us snap out of the delusion we seemed to have cozy ourselves in. What are our long term revenue predictions that we intend to use to settle this debts? Is it crude oil? Make no mistake, economic progress made so far has been possible primarily as a result of increased crude oil price. In the world today, countries are gearing away from fossil fuel reliance. And our crude oil is just as important and expensive as people rely on it. So what our revenue projections again?

The minister says loan requests by state government are turned down if they exceed 40 percent of their revenue. Little wonder why this yardstick is not applied to the federal government. The problem here is not the loans, the problem here is revenue.
Mrs. Adeosun says the borrowings are necessitated due to significant declines in government revenue. Well, if you ask me what the government is putting in place to hedge against future abrupt revenue declines, I’d barely find my tongue.

Debts and deficits are not evil spirits as they are occasionally required; a decades old recommendation from one of the greatest economists to have lived. This is so especially for a grieving economy with growth potential. However, these debts can only be productive if well managed by making the rate of return higher than the cost of servicing the debt.
The concern is not about today, it is about the future. Spending 3 billion dollars to refinance domestic maturing debt and another 2.5 billion dollars on capital budget expenses for projects the Minister says includes Mambilla hydro power station, part funding for rail projects, run way at the Nnamdi Azikiwe airport, Bodo-Bonny road with a bridge across the Opobo channel.

What are the deadlines for implementation of these projects? What are the costs? These questions need be answered so Nigerians can hold their government accountable because when push comes to shove, your hard earned money is what the government intends to use to pay off the creditors when they come calling and their revenue proves unequal to the task.

 

Kachi Okemiri is writing from Lagos

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