Nigeria’s golden moment of debt management was achieved in 2005 when the country displayed a high-level sense of public finance engineering. That year, Nigeria and the Paris Club announced a final agreement for debt relief worth $18 billion, which led to a reduction of the nation’s debt stock by $30 billion. Nigeria’s determination to exit the fold of highly indebted countries continued with the completion of that push in April of the following year when the government of the day cleared its books of debts owed to the Paris Club of commercial creditors.
Since that historic exit, Nigeria’s debt stock has witnessed significant buildup as the country embarked on new borrowings. In fact, over the intervening years, Nigeria has been taking one loan or the other for various projects.
It appears our governments are not afraid of debt. Be that as it may, the ordinary citizens of the country are wary of debts. They know that debts must be repaid at the end of the day. The citizens know also that it is they who will be responsible for the repayment of the debts. True, citizens bear the brunt of debt servicing and repayment because the resources that would have been used to meet their needs would ultimately be diverted into debt payments. In the alternative, more stringent fiscal measures would be imposed on them for the government to generate the revenues to service the debts. So, whichever way it goes, the ordinary masses are the ones that lose.
This is why Daily Trust is concerned that the governments (federal and states) are allowing Nigeria’s debts to pile up again, rising relatively high as a ratio to our gross domestic product (GDP).
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According to figures published by the Debt Management Office (DMO) and the National Bureau of Statistics (NBS), Nigeria’s debt-to-GDP ratio for 2023 was 52.9%. This is even as the debt office has also revealed that Nigeria’s debt servicing more than doubled last year to N7.8 trillion.
This is quite significant. First, it is higher than the benchmark debt-to-GDP ratio of 25% set by the federal government. Secondly, for a country with a recent history of challenges associated with debt servicing and repayment, this is a trend that must be watched. We believe that something urgent must be done about it. We are apprehensive about this given our recent experiences with debt servicing as a nation. We got to such an ugly situation where our entire federal revenue was being used to service the nation’s debts, besides the challenge of repaying such loans.
Daily Trust hereby declares that Nigerian governments must take the utmost care in managing the nation’s debt profile. As in corporate organisations, the guiding principle in debt management is the ability of the borrower to repay. And that ability to repay loans is often expressed in terms of the loan, the ratio of the loan amount, and the borrower’s income. In the case of a nation, this ability is measured by the debt-to-GDP ratio.
If the debts had been used to build the economy, it would be easy to relate the huge obligations now hanging over our heads to some positive developments or achievements. But the hard truth is that most Nigerians cannot point to many tangible achievements that have been made with the help of the loans.
Therefore, we are apprehensive, not just because the debts are rising, but because we are not seeing anything that they were used to execute. Debts are supposed to add to the capacity of the borrower to perform.
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