Nigeria climbing another debt cliff

on   /   in Broken Links 12:43 am   /   Comments

By OMOH GABRIEL

Nigeria is again on the path towards a debt trap set as usual by its quest and taste for nice things. The country is accumulating debt without any visible alternative of paying back the loans apart from oil.

naira-DollarIn other parts of the world, countries borrow to improve their capital infrastructure that aid further production. This helps in no small way to pay off such debt. In those other countries, citizens and corporate bodies pay their taxes regularly to aid development. Nigeria’s tax to GDP ratio is one of the lowest in the world.

With oil prices swinging and with more oil being found around the world, Nigeria has been growing its debt profile.

Nigeria’s total debt stock has risen to a very high level of N10.4 trillion as at June 2014. The rising debt profile of the country is made up of external debt stock of N1.46 trillion ($9.377billion) and Federal Government domestic debt of N7.421 trillion ($47.653billion). States in the federation have a domestic debt stock of N1.551trillion or $9.963 billion.

The Federal Government share of the rising external debt stock stands at $6.363billion. As at December 2013, however, the total stock of external debt was $8.821 billion, indicating a rise of $556 million in the first half of 2014. But as at 31st December 2012, Federal Government’s external debt was $4.14 billion as against a total debt stock of both federal and state governments of $6.5 billion.

A break down of the rising debt profile showed that Federal Government’s external and domestic debts amounted to N8.8 trillion or $57.030 billion as at the end of June 2014. Federal Government borrowing from multilateral institutions amounted to $3.826 billion while loans from bilateral sources mainly China Exim Bank and Eurobond amounted to $2.537 billion.

In the case of states, a total of $2.904 billion was sourced from multilateral institutions, $108.9 million was obtained as loans from bilateral sources, thus making states’ total outstanding external debt as at June 2013, $3.013 billion.

The growing debt should be of concern to all Nigerians considering the nation’s recent experience with the Paris Club of creditors.

Nigerians will remember that in 1985, Nigeria owed $8 billion to the Paris Club of creditors out of $19 billion of its foreign debt. By the end of 2004, about 11 years after, Nigeria owed the Paris Club $31 billion out of $36 billion of its foreign debt. The rise in the debt stock was as a result of interest rates, interest arrears and interest charged on the arrears.

These are huge arrears, penalties and interests accumulated over the years. In December 2000, rescheduling agreements made by the Federal Government showed the principal balance of the nation’s debt was $1.48 billion. But the principal arrears were $10.31 billion; interest arrears $4.45 billion and late interest $5.18 billion.

As a result, over $6 billion increase was recorded on Nigeria’s debt profile between 2002-2004. This added up to $31.42 billion that Nigeria was said to be owing the Paris Club as at 2002. To exit the Paris Club, Nigeria made the total payment of $12.4 billion to Paris Club and Britain, the largest creditor received $3 billion.

Years after, Dr. Ngozi Okonjo-Iweala who assisted Nigeria to exit the club of creditors is again presiding over the accumulation of another round of debt that could snowball into a debt trap. In an attempt to comfort Nigerians that all is well, the Director-General, Debt Management Office, Dr. Abraham Nwankwo assured that the debt remained sustainable at a ratio of 12.51 to the Gross Domestic Product, GDP. But he contradicted himself immediately by saying that the managers of the nation’s debt would apply more caution in further borrowing in order not to run into the crisis of debt overhang, which the nation once suffered.

Nwankwo is just being a clever civil servant. All is not well. The debt is mounting and the nation’s revenue profile is dwindling. Oil production is dropping, traditional buyers of Nigeria’s oil are finding alternatives. If the prices of crude crash as it did in the 80s that led to the nation’s inability to pay its debt as at when due, the country will once again be in a strait. For several years, Nigeria has been preaching economic diversification without any appreciable progress. The nation has continued to import goods it has no business importing.

Nothing has changed, just the faces of the economic managers whose major concern is gathering in Abuja at the end of every month to share oil money.

DMO-DG said: “The sovereign debt is doing well. Currently, our total sovereign domestic debt for federal, states and the FCT is about N8.9 trillion and external debt is about $9.38 billion. The question to ask Dr. Nwankwo is: how well is the debt doing? A debt is a debt. These men should stop deceiving Nigerians. You are accumulating debt for the next generation of Nigerians. The last debt overhang is what has caused the level of unemployment in the country today.

The present insecurity ravaging the unity of the country was as a result of the indiscretion of those who led the nation to wanton borrowing in the 70s. Today, while those men and their children are living in luxury, the younger generation is wallowing in abject poverty.

The government would want Nigerians to swallow the bait that the nation’s current debt/G.P. ratio is about 12.51 per cent which is much lower than the 56 per cent total public to G.P for countries in Nigeria’s group saying that this is not an indication that Nigeria can afford to borrow without caution.

In spite of the rebasing which means we have more capacity to borrow, we are not going to borrow without caution. In fact, we are going to be more cautious, especially because our tax-G.P ratio is low. Many economic agents do not pay their taxes.” This is where this government has failed. If many economic agents are not paying their taxes and oil revenue is dwindling, what has it done to fill the gap? This is dangerous for the future.

The frightening thing is that the Federal Government raised additional $1 billion from the international capital market in 2013 following which several Nigerian firms, especially banks have also gone to the international capital market to raise funds for their operations. Six companies issued nine bonds within the last one year, from which about $3.4 billion was raised. This development does not look promising considering Nigeria’s previous experience with borrowing from the international capital market.

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