The rate at which Nigeria’s public debt has increased in the last six years is unprecedented, alarming, and unsustainable. From $10.31 billion at the end of June 2015, the total external debt increased to $32.85 billion at the end of March 2021, which represents a 218 percent increase. The total outstanding public debt stock increased by 173 percent in the same period, from N12.11 trillion to N33.10 trillion. On the average, over N3.6 trillion is being added to the public debt annually.
This massive borrowing, and the infrastructure investment that has been used to justify it, have grossly under-performed. Instead of delivering economic growth, the economy has been twice in recession, and when out of it, growth has been underwhelming at 2 percent at best. And rather than the debt-funded infrastructure projects creating ample number of jobs for the citizens, the national unemployment rate has increased to 33.1 percent while youth unemployment has reached 42.5 percent.
Under a scenario of a coordinated economic policy by a competent government, the debt capital outlay would have catalyzed private sector investments and sizeable foreign direct investment (FDI) flows into the economy. Public-private partnerships should be the dominant approach to infrastructure development in a country like Nigeria, instead of contract awards that, from information available from comparable projects in countries such as Ghana and Ethiopia, are at best overvalued and, at worst, grossly inflated in their costs. But in the real situation of the incompetence of the government in the last six years, businesses have been groaning and FDI inflows have decreased.
Over the past months, debt service cost has taken up more than 90 percent of government revenue. This means, for every one naira generated in public revenue, more than 90 kobo is used to pay the interest on government’s loans. It is debilitating that Nigeria is spending so much money that should go to development toward merely servicing the interest on our debt, not repaying the debt. It also makes justifications based on our debt to GDP ratio off-point.
The country is now on a dangerous, debt-induced fiscal cliff. Put simply, the Government of Nigeria is mortgaging the future of our country’s youth. We have to stop further borrowing and start to manage the current obligations in order to avoid a sovereign debt default or, at best, a costly restructuring. Further borrowing will lead to a disastrous debt bubble bust.
As alternatives to debt, the government needs to focus on increasing domestic revenue, by expanding the tax base – not by increasing tax rates as has been done with the value added tax (VAT) – and by introducing reforms for ease of paying taxes while abolishing multiple taxation.
Taxation requires the government to maintain a social contract with the people. At the minimum, the government must restore security to the country so that citizens can go about their business, assured of their safety.
When I ran for president in 2019, I said I would introduce a forensic audit of the budgets if elected, as part of a broader reform initiative for transparency and accountability in public finance. This remains very important for ensuring value for money and to support public revenue growth by restoring investor confidence in the economy. To realise a positive long-term public revenue outlook, the economy must be successfully diversified through value-added exports.
Professor Kingsley Moghalu is a former deputy governor of the Central Bank of Nigeria and a presidential candidate in the 2019 general election.
