4 June 2018

Nigeria: Debt, Debt, Debt Everywhere and Yet More Debt

On May 22 this year, the International Monetary Fund's, Resident Representative for Nigeria, Amine Mati, expressed concern over Nigeria's capacity to sustain a debt burden which has, reportedly almost double from N12.12 trn in June 2015 to N21.75 trn by December 2017.

In retrospect, the debt of N21.75 trn (about $65bn) is, alarmingly, also double the $34bn debt burden which was considered unsustainable by 2005; consequently, despite our evidently dysfunctional economy, with severe social and infrastructural deprivations, Nigeria, ultimately coughed up over $12bn to receive forgiveness of about $18bn.

Nonetheless, the unfolding debt predicament hastily consolidated, barely a decade after our Paris and London Creditors shakedown, was certainly foreseeable and avoidable. However, despite several admonitions on various platforms, by this writer, for Nigeria to restructure the subsisting fiscal and monetary models, which have continuously compelled deficit budgets and increasing debt accumulation, successive Administrations have regrettably, stubbornly persisted, in a path of perfidy which invariably precipates deepening poverty and a comatose economy.

Notably, however, after the controversial debt exit, Nigeria's debt profile had become very lean with about $3bn external debt with barely N1tn outstanding as domestic debt, while local contractors were owed N1Tn.

Nonetheless, in the run up to debt exit in 2005, this writer examined the implications of the existing controversial oppressive debt in an article titled "$34bn debt, 20bn reserve, debt forgiveness and slavery" (See Vanguard Newspaper, February 28, 2005). That article was followed on July 4, 2005 by another piece titled "Now that we have debt relief". Predictably, when misplaced public expectation for a stronger naira exchange rate and a bustling domestic economy, did not materialise after debt forgiveness, another article "Why the Naira rate remains resistant to debt relief and huge reserves" was published on August 8, 2005, and followed later on December 12, 2005 with another intervention titled "Compassionate debt relief and Paris club 419!" Furthermore, in consternation at our unchanging parlous economy after so called "debt forgiveness", the title "Debt free but still shackled!" was published, on April 9, 2007, and followed by "National assembly fiddles as debt burden cripples" on May 26, 2008.

The increasing pain of servicing our spiraling debt burden, led to the publication of the trilogy, "Bleeding us to death with debt 1, 2 and 3" on 29/9/2008, 6/10/2008 and 13/10/2008 respectively. These serial lamentations, was followed on December 7, 2009 by "Mugu" smiles back to debt trap", while "Increasing National debt-NASS beware!" was published on December 26, 2009, to draw attention to the dangerous implication of our rising debts. "External debt- at what cost" was later published in February 2009, to examine government's false claim that external debts are cheaper than the cost of domestic debts.

The title "Nigeria debt creation office" was subsequently published on October 25, 2010 in response to the seemingly compulsive expensive forays of the Debt Management Office, DMO, to consolidate and streamline Nigeria's public debt. Furthermore, the apparent contradiction of rapidly increasing debt, despite fortuitously bountiful foreign reserves of $42bn, invariably encouraged the publication of "Why are we still borrowing" on August 17, 2012. Furthermore, in response to favourable media coverage from both local and international media and finance establishments of Nigeria's rapidly bloating debt burden, another article titled "As vultures applaud imminent debt trap" was published in May 2013, while "The paradox of debt accumulation inspite of healthy reserves" was later published on September 9, 2014.

Notably, however, almost a year after the change of government in 2015, the title "Buhari's compulsive leap into a debt trap" was published on April 11, 2016, to examine the DMO and government's expensive forays in an otherwise risk-free, low rate Sovereign debt market. The title "Development Versus debt peonage", is a summary of a paper presented by Brain Browne, an American economist, was published on March 9, 2017, and painfully followed in October 2017 with the title "Debt conundrum once again".

Ultimately, however, in May 2018, IMF's Amine Mati warned, as follows; "Nigeria's debt figure which is 20.23% of GDP is still quite low by any standard, the issue is capacity to repay the debts". So according to Mati, "interest payment to revenue is an issue" and he, therefore, recommended urgent "increase in revenue".

Nonetheless, Patience Oniha, the Director General of Nigeria's Debt Management Office, lately, confirmed that, while domestic debt fell marginally, Nigeria's external debt had risen from 20.4 per cent in 2016 to 26.64 per cent of total debt by December 2017. Oniha, however, explained that "debt service is a function of the interest that you pay on borrowings as well as your revenue". Oniha, therefore, warned that "revenue has remained low relative to the size of the GDP"; consequently the DMO boss has reportedly adopted, "a new debt management strategy to moderate the growth of interest expense by shifting some of the borrowing externally", since borrowing on the domestic market, would attract about 16 - 17 per cent interest, while Government conversely was able to borrow below 8% on the international market. So, according to Oniha, "rather than borrow that $4.8bn that we borrowed in the international market in the domestic market, we borrowed at below eight per cent. If we raised the money in the domestic market, we (actually) would have had to pay those high rates".

Inexplicably, however, in May this year, despite the already oppressive debt burden, the Ministry of Transport's spokesperson, Yetunde Shoniake, confirmed a contract agreement of "$6.68b with CHINA for building of the Ibadan- Kaduna segment of the Lagos -Kano rail line". Incidentally, whether or not the contract sum is a fresh loan remains unclear? Nonetheless, there is, however, no indication that the National Assembly has approved any such loan; it is clear, however, that the N2 trn ($6bn) projected deficit in 2018 budget, will compound N21.75 trn ($65bn) existing national debt as at December 2017, with possibly other 'spontaneous' external advances, to inevitably push Nigeria deeper into an obnoxious debt trap, even when our eyes are wide open.

Regrettably, the fallacy of cheaper foreign loans has also been promoted by Finance Minister, Kemi Adeosun. In reality, however, if the Naira drops below N1000=$1 within 10 years (and this would be inevitable, if the CBN persists in auctions of dollars against Naira), then, invariably, an initially relatively cheap 7 per cent foreign loan, would require over three times the present Naira value, i.e. 21 per cent to service, while the final repayment of the foreign capital sum would similarly be three times higher. Regrettably, in this event, this administration would also have gleefully sown the wild oats that would choke the lives of generations yet to come because of expensive loans that have woefully failed to improve social welfare.

Nigeria

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