By Onaivi Cephas
STATISTICS have a deft way of creating one impression or the other, sometimes for good, and at other unwelcome times, for bad. The latest Nigeria Extractive Industries Transparency Initiative, NEITI, Quarterly Review shows Nigeria’s debt profile and indicates a drastic drop in the revenue profile of most states of the federation. In the South-South zone, the report ominously avers that the debt profile of the state governments is on the increase, consisting of domestic and external debts between December 2015 and June 30th, 2016.
For instance, Lagos State has the highest cumulative debt of N603.25 billion as against the state’s revenue of N410.5bn for 2016. The second on the debt table is Delta State with N331.95 billion growing debt as against N142.78 of the state revenue. Akwa Ibom state occupied the fourth place on rising debt profiles with N161.23 billion.
What cannot be ignored in the NEITI report is that it clearly vindicates Edo State on both domestic and foreign debts. The World Bank loan Edo State took is cheaper to service and attracts about 1% interest rate compared to domestic borrowing that attracts 18% interest rate. The report maintained that “considering that most states already have a high debt burden, the possibility of even higher debts for the states remain quite high.”
Among the subnational governments, Lagos, Kaduna, Edo, Cross River and Ogun states retained the top spots on the list of foreign debtors. If Nigerian external debt accounts for 20% of Nigeria’s debt profile, how does Edo’s debt constitute one of the highest? Is 20% more than 80%? Is the external debt stock of $11.41 billion (N3.48trillion) which accounted for 20% more than the domestic debt stock of $45.98 billion (N13.88trillion), which accounted for 80%?
A clarification is necessary here. The total debt profile of $57.39bn is made up of external debt stock of $11.41 billion (N3.48trillion) which accounts for 20% and domestic debt stock of $45.98 billion (N13.88 trillion) which accounts for 80%. The external debt of 20% cannot amount to the highest. Analysts should stop categorising Edo State as the most indebted state in Nigeria. The rate of the rise in foreign debt has been slower than that of domestic debt. In recent times, the Federal Government has been making attempts to increase the proportion of foreign debt, because of the higher interest rate charged on domestic debts.
Edo State is just as privileged as Lagos state in Sub-Saharan Africa to access World Bank loans at less than 1% for 20 years, and in some cases, 10-year moratorium.
For a shared understanding of Nigeria’s domestic debt, a major source of concern is that Nigeria’s public domestic debt has experienced rapid growth over the past 10 years and that debt service outlay is quite high. The domestic debt-GDP ratio is only about 10%; the total public debt-GDP ratio is 12.25%, and compares favourably with the peer group threshold of 56%.
Although the debt service-revenue ratio is high, the problem needs to be unbundled so we can all agree on the appropriate solution path. Indeed, following the rebasing of Nigeria’s GDP in 2010, the DMO observed that the increase in the GDP did not enhance the country’s ability to service its debts. Nigeria’s tax revenue-GDP ratio is still below 6% compared to the average for the country’s peer group, which is 18%. Essentially, therefore, from this perspective, what is being experienced is a revenue problem which impacts the debt service-revenue ratio.
Already the Federal Government is set to raise its domestic and foreign borrowing ratio under the new Debt Management Strategy, DMS, unveiled by the DMO for the next four years. The DMS is about how funds are borrowed, internally and externally. It is a medium term project from 2016 to 2019 setting out the broad guidelines for four years. A review of the new debt strategy shows that it would slant significantly in favour of external borrowing than domestic borrowing.
As noted by an expert, domestic and external borrowings would now be in the ratio of 60:40 per cent as against the previous ration of 84:16 per cent respectively. The new borrowing strategy, as explained further, would progressively increase the percentage share of external financing, taking into account the need to moderate foreign exchange risk in the short to medium term. The expert said the reason for the shift towards more external borrowing was because external borrowing was cheaper, apart from the advantage of lower cost of fund to avoid the risk of crowding out the private sector.
In all these things, it must be recalled that Investigation by Sunday Vanguard showed that only Edo, Lagos, Delta, Ebonyi, Anambra, Cross River, Akwa Ibom, Kano and Enugu states have paid their workers’ salaries and allowances up to April and are therefore not owing their workers.
From the foregoing, there can be no doubt that Edo State is on the right path with its borrowing for the development of the state. It is one borrowing ideal that does not commit the state to punitive debt burden that generation unborn will have to bear.