Nigeria’s long-standing huge foreign debt architecture reared its ugly head once more as the World Bank audited financial statements released on Monday 9th August 2021 rated Nigeria fifth on the list of top 10 countries with a high debt risk exposure of $11.7bn debt stock. As captured in the financial statement, Nigeria faces two types of credit risk; country credit risk and counterparty credit risk. While country credit risk is the risk of loss due to a country not meeting its contractual obligations, and counterparty credit risk is the risk of loss attributable to a counterparty not honouring its contractual obligations.Recall that Nigeria’s total debt stock rose to N33.1 trillion as of March 2021. It has been revealed by the Debt Management Office, that Nigeria owes the World Bank a total of $11.51bn, as of March 31, 2021. This is coupled with an over N3.5 trillion debt servicing plan in the 2021 budget. This dangerous trajectory of the debts has manifested in a spike in the debt service-to-revenue ratio since the inception of this administration. Debt servicing gulped N1.06 trillion in Q1 2021, representing a 35.7% increase year-on-year compared to N753.7 billion spent within the same period in 2020. Undoubtedly, Nigeria’s economic position is precarious, with almost all the indices unfavourable. This administration’s unholy thirst for loans which is largely used to pay salaries, overhead and inadequate amount for capital expenditures is retrogressive and unacceptable with the aim to sink the economy of the country. Ultimately, President Muhammadu Buhari’s government needs a shift in mindset towards diversifying the economy to improve revenue generation, and responsible borrowing.
Social Action finds the World Bank’s report disturbing. It is not a scant fact that Nigeria is already struggling with a large external debt and the vulnerability it poses to the economy is evident. We have continually maintained that the government must design workable economic policy and strengthen relevant institutions, to diversify the economy and reduce its over-reliance on foreign loans that increase Nigeria’s debt burden. Unfortunately, diversification of the economy against solely relying on revenue from the sale of crude and taking unwarranted foreign debts continues to elude this government. This sad reality works against any economic goal the country has set out to achieve and also makes Nigeria particularly vulnerable to sudden external shocks as an oil-dependent economy. The economic inequality in Nigeria is pronounced with the poverty rate astronomically rising. With huge swaths of arable land across different regions of the country, it is a wonder why agriculture has not been fully explored as a major source of generating revenue cum Forex.
We, therefore, call for more ambitious economic measures as we strongly believe that Nigeria’s debt burden will remain a hindrance to achieving a sustainable economy.
A diversified economy will provide a menu of options to revive the economy and not taking more loans. Social Action tasks the President Muhammadu Buhari’s government to also develop a debt sustainability framework to help guide the country in repayment ability, mobilizing the financing for development needs, while reducing the chances of an excessive build-up of debt in the future.
Given the importance of diversifying the economy, it is critical to recognize how various dimensions of diversification can have different implications for the country which includes the creation of employment, increase in Forex and facilitate a robust economy. It is important this government expands existing economic sectors and then creates new ones to achieve a comprehensive diversification of the economy; this will consequently improve revenue and large outlay for capital expenditure which will play a central role in helping to catalyze broader economic transformation. The erstwhile Managing Director of the International Monetary Fund (IMF), Christine Lagarde, emphasized the importance of diversification, in her words “We know that economic diversification is good for growth”. This is one statement we must take seriously as the benefits of economic diversification merit urgent attention by this government.