By Victoria Ojeme
The Centre for Democracy and Development (CDD), an Abuja-based policy advocacy and research organization has condemned Nigeria’s rising public debt which is gulping 60 per cent of the nation’s revenue in debt servicing.
The CDD’s Director, Idayat Hassan, in a Five Year Assessment Spotlighting President Mohammadu Buhari’s Performance on the Economy said “the continues accumulation debt is certainly unsustainable.”
Nigeria’s total public debt portfolio as at December 31, 2019 is N27,401,381.29. The House of Representatives had this Tuesday approved President Muhammadu Buhari’s request to take $22.7 billion in foreign loans.
Last week, the President also wrote the National Assembly seeking the approval of another $5.513 billion foreign loans.
Last month, both Houses approved an ₦850 billion loan proposal from the president, which is to be sourced from domestic markets “to fund critical capital projects in the 2020 budget.”
According to the CDD, the federal government borrowing has grown by more than 100 percent since 2015. “Although federal government’s current debt stock of about N22 billion is less than 20 percent of GDP, the continuous accumulation of debt appears unsustainable as servicing of the debts is already accounting for more than 60 percent of government revenue.”
The wobbly shape of the economy, according to the report is further underscored by the recent downgrade in Nigeria’s credit rating by key international credit agencies (S&P and Fitch) in the first half of 2020. It was argued that with the twin shocks resulting from global oil glut and the COVID-19 pandemic, the country’s debt burden is expected to further increase in 2020 especially if government fails to be more decisive in its debt management policies.
The CDD also condemned low score the administration got for job losses and the increasing poverty in the land. Data referenced in the report have it that about 4.04 million persons lost their jobs in 2015, as unemployment and underemployment rate increased from 6.4 percent and 17.9 percent in Q42014 to 10.4 percent and 18.7 percent in Q42015.
The assessment informs that in the period under review, unemployment rate was high among youths, as about 5.3 million youths within the age bracket of 15-24 could not get a job in 2015. The report put it on record that “the high rate of unemployment and increased poverty partly triggered the security challenges in the country, which was a key campaign promise of the President. These challenges set a slow start for President Buhari’s administration.”
Another key issue from the report is the extrapolation made about the tendency for modest economic gains to be easily reversed when the administration should be moving to consolidate those quick wins. For instance, it was noted that economic growth picked-up in 2018 and 2019 for the first time since the recession of 2016. Unfortunately, those gains were soon wiped out because of lower per capita income and increased unemployment.
“The growth rate which stood at average of 1.9 per cent in 2018 and 2 per cent in the first half of 2019 continued to remain below the estimated population growth rate, thus lowering per capita income and increasing both unemployment and poverty rates.”
Similarly, the double-edged impact of the decision to close the borders in August 2019 was described as an attempt to boost local production, yet the closure had undesirable effects in terms of stifling the trade sector and causing inflation. The assessment notes for instance that food inflation increased from 11 percent in August 2019 to 15.03 percent in April 2020; while trade, which is a major component in the services sector and the second-largest employer of labour, contracted by one percent in the second half of 2019.
The report equally provides a critique of several other issues relating to the management of the economy. It discussed extensively the role of the Central Bank of Nigeria (CBN), which is now very much involved in fiscal stimulus to prop up the ailing economy. It also situates the impact of the social investment programme and the interlinked nature of other critical sectors such as health and education to the economy. Beyond these however, the assessment provided some important pointers and recommendations for the good of the economy.
The report canvassed a reduction of the CBN’s quasi-fiscal role and improving credit information and sharing. This it argues is critical to enhance the effectiveness of existing credit facilities. According to the perspective, while the development finance operations by the CBN has improved the flow of credit to targeted sectors at single digit interest rate, it is crucial for the apex bank to reduce its involvement in quasi-fiscal operations.
“The involvement of the CBN not only reduces the transparency of these expenses but also creates an inappropriate attitude from beneficiaries with some viewing the credit facilities as grants. This not only affects the effectiveness of the facilities but also threatens their sustainability.” The assessment also forcefully makes the point that although commercial banks play a significant role in managing and disbursing the credit, under the supervision of the CBN, it wants the collateralization requirement for the loans to be withdrawn.
“To achieve this, more has to be done to ensure that information on potential borrowers exist. Presently, the Nigeria’s largest credit bureau, CRC Credit Bureau Limited, only provides credit scoring services covering 14% of the adult population which hinders access to finance to most of the population.”
The assessment also stressed the importance of open government by taking advantage of new digital technologies to better package programme strategies as well as during implementation. Adoption of these technologies, the assessment argues will improve accountability, transparency and citizens’ participation. It therefore encouraged the government to engage in peer learning from countries such as Rwanda, which have been successful in deployment digital technology for effective governance.
The assessment admonished the government to come to terms with the fact that key reforms in the human capital sectors are important in achieving success in overall economic development. It said: “While the government has laid down its plans to reform the sectors such as introducing a new skills-based curriculum in secondary schools focused on coding and robotics as well as doubling the number of practicing physicians, not much has been done to achieve them.
“It is important to note that the quality of the labour force influences the productivity of both private and public sectors and in turn the level of economic growth. The private sector can play more a more active role in both the education and health sectors as they bring on innovation, technology and financing that can boost the productivity 0f these sectors and achieve significant returns.”
The call was also made for the authorities to decisively address other regulatory and structural issues, which stifle the growth of the economy. Challenges such as bureaucratic bottlenecks, corruption, subversion of the rule of law, and the non-enforcement of contracts were mentioned as some of the issues that must be addressed.
The report noted that “while finance remains a key issue that hinders the growth of the private sector particularly small businesses, and is vigorously being addressed by the government, these structural issues also pose a barrier to their growth. Additional finance without addressing these issues will not bring about the gains envisaged by the government. Legislative reforms as well as a more business-friendly attitude has to be put up not only for local businesses but also to attract foreign investment.”
The report called for lasting solutions to the age-long infrastructure challenges that hinders economy growth. Particularly, the crisis in the power sector, which exponentially increases the cost of doing business was flagged as one area to urgently address. The assessment points out that the deficit in infrastructure “increases the cost of doing business and affects their bottom line, with some having to shut down.
“If not within Nigeria, enormous capital exists outside the country which can be deployed to deliver the much-needed infrastructure. However, projects will need to be bankable with clear and agreed-upon means of obtaining the returns on investment,” the report said.