The Debt Management Office sent shivers down the spine of concerned Nigerians last week when it announced that the nation’s total public debt stock increased to N39.56 trillion in 2021 from N32.92 trillion in 2020. The amount, which stood at $95.78 billion in dollar terms, represents the total external and domestic debts of the Federal Government of Nigeria, the 36 state governments and the federal capital territory, Abuja.
The 2021 appropriation and supplementary acts included total new borrowings (from domestic and external sources) of N5.49tn to part-finance its huge deficit. This partly accounts for the increase in debt stock, in addition to disbursements by multilateral and bilateral creditors.
Apparently determined to water down growing anxiety over the nation’s ballooning debt profile, the DMO said that Nigeria is still within the total public debt stock to the Gross Domestic Product limit of 55 per cent set by the World Bank and 70 per cent set by the Economic Community of West African States.
Of course, with total public debt to GDP as at December 2021 standing at 22.47 per cent, the debt-to-GDP ratio still remains within Nigeria’s self-imposed limit of 40 per cent.
The challenge, however, hasn’t always been about debt-to-GDP, but about debt-to-revenue concerns.
In the revenue context, the nation is literally dancing on the cliff of fiscal collapse. When the nation’s revenue-to-debt servicing figures are placed under scrutiny, the result would make a mess of the oft-repeated claims in government that Nigeria does not have a debt problem, but that of revenue.
A Debt-to-revenue Nightmare
In a July 2021 budget implementation report presented by the Minister of Finance, Budget & National Planning, Mrs Zainab Ahmed, details showed that the Nigerian government spent a total of N1.8 trillion on debt servicing in the first five months of 2021, representing about 98% of the total revenue generated in the same period!
Within the period, total aggregate revenue generated by the government between January and May 2021 stood at N1.84 trillion, representing a shortfall of N1.48 trillion compared to the expected revenue of N3.32 trillion. Meanwhile, the nation’s debt servicing figures within the period stood at 37% of the total N4.86 trillion expended by the federal government, while N1.5 trillion was spent on personnel costs, pensions, and other overheads.
More ominous were details of the Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP) report released by the Federal Ministry of Finance, Budget, and National Planning in May 2020, which showed that the nation’s debt service as a percentage of revenue rose to 99% in the first quarter of 2020!
The MTEF/FSP report showed, for instance, that in Q1 2020, Nigeria incurred a total sum of N943.12 billion in debt service while the federal government retained revenue stood at N950.56 billion.
For clarity, what that implies is that for every N100 earned by the Nigerian government within that period, a whopping N99 went into debt servicing!
In effect, the nation was left with just N1 to plan, fix infrastructure, pay salaries, and attend to other fundamental obligations.
When does a revenue problem become a debt problem, really?
For decades, the Nigerian government has maintained the banal claim that the nation does not have a debt problem, but that of revenue, while it continues on a borrowing binge. But beyond dubious semantics, a revenue problem essentially becomes a debt problem when revenue projections fail and debt obligations aren’t met in the context of poor earnings.
For clarity, we will return to the budget implementation report of H1 2022, as presented by the Minister of Finance, Budget & National Planning, Mrs Zainab Shamsuna Ahmed.
In terms of revenue, within the five-month period, N1.49 trillion was realized from oil and gas, representing a 69% performance compared to the prorated N2.16 trillion.
However, the gross oil and gas revenue for 2021 was projected at N5.19 trillion. In essence, the government’s modest projections on revenue failed and affected the debt-related obligations.
Since debts are often paid back with revenue and not “GDP”, the oft-repeated claim of assessing the nation’s fiscal condition on the basis of debt-to-GDP figures remains mendacious, to put it mildly.
Worse still, the DMO said that the total debt stock of Nigeria is likely to reach N45 trillion by the end of the year as it plans to borrow an additional N6.39 trillion to finance the 2022 budget deficit. For an administration that met Nigeria’s combined debt figure at about N9.8 trillion in 2015, and has equally lamented that the nation does not benefit from the ongoing price rally in the global oil market due to production challenges and subsidy-related concessions, Nigeria sure has a huge—even if unacknowledged–debt problem.
Soludo and Anambra’s rusty shock absorbers
Still smarting from what many commentators have described as “inaugural slap” that took the shine off his inauguration ceremony last week, Governor Charles Soludo of Anambra State must have been shocked by the absence of “shock absorbers” in the financial wheel of the state he has just been sworn in to govern.
Speaking to Arise TV earlier in the week, Soludo said he met “about N300 to N400 million” in the state treasury but inherited about N109 billion debt when he assumed office.
For one, anyone who knew or heard about the immediate past governor and his flamboyance in office may not be “shocked” by this revelation. It’s also in that context that one may perceive the recent arrest of the former governor by operatives of the Economic and Financial Crimes Commission, EFCC.
The former governor, Willie Obiano, was reportedly arrested for alleged misappropriation of public funds, including, N5 billion Sure-P and N37 billion security vote which was withdrawn in cash. Part of the funds was also allegedly diverted to finance political activities in the state.
Interestingly, Obiano was reported to have inherited a combined amount of about N48, 626 billion from his predecessor, Peter Obi. Both men disagreed on the amount of debt left behind, but Obi is on record to have said that he left NO debt behind for Obiano.
Subnational deadlock?
In essence, what Soludo’s jeremiad may have shown is that most Nigerian states are in a state of “fiscal deadlock”—and are mostly becoming unsustainable.
The DMO in its last report put the domestic debts owed by state governments and the Federal Capital Territory Administration at N6.43 trillion at the end of 2021. The report said that the sub-national domestic debt stock was N4.46 trillion, while the sub-national external debt stock was N1.97 trillion.
Economically viable states like Lagos, Ogun and Rivers were listed as the three most indebted states in the country. They were joined by Akwa Ibom and Imo in the list of top five debtors, with a combined domestic debt stock of about N1.56 trillion.
All five states account for 34.98 per cent of the total domestic debt owed by the sub-national governments in the country as of December 31, 2021, with Lagos owing N658.96bn, Ogun owing N232.62bn, Rivers owing N225.51bn, Akwa Ibom owing N214.61bn, and Imo owing N205.19bn.
States like Osun, which has been on the fiscal radar for years for its ballooning public debt and near-total fiscal collapse in the Rauf Aregebesola years, also showed up in the list of notable debtors with its N134.70bn debt. It’s in the league of Cross River (N159.82bn), Delta (N154.61bn), Bayelsa (N154.61bn); Plateau (N150.5bn), and Oyo, N142.56bn.
Due to ballooning debt, many of the states like Kogi and Benue can neither pay salaries adequately nor fix infrastructural deficits, perpetually suspended in a state of “financial deadlock”.
Other states that cannot access the financial markets, like Osun and Oyo state, have devised sundry alternative funding approaches to address infrastructural needs.
With dwindling IGR and the huge debt on the neck of Soludo’s Anambra, coupled with the number of moneybags in the State, it is perhaps plausible that the new governor may also follow the contractor financing PPP model being adopted by most of these cash-strapped, heavily indebted states. It remains to be seen how far this can take them.
But the big question remains: how much of public interest is being promoted and protected in these opaque alternative financing/PPP models being adopted by heavily indebted states across Nigeria?