BY KAYODE OGUNWALE
Both the National Bureau of Statistics (NBS) and the International Monetary Fund (IMF) have been raising alarm on Nigeria’s mounting debt profile, but major concerns lie in government’s seeming denial of the worsening situation.
In its report on ‘Nigerian Domestic and Foreign Debt Data’, the National Bureau of Statistics (NBS) said Nigeria’s foreign debt stood at $25.27 billion as at December 31, 2018.
At the ongoing World Bank/IMF 2019 Spring Meeting in Washington DC, USA, IMF continued to sound alarms over the country’s worsening debt profile, pointing at poor resource management strategies that underplay domestic productivity and overemphasize resource revenue.
The IMF warned that Nigeria’s Debt-to-GDP ratio has become weak, risky and incapable of supporting growth. It stressed the country’s economic growth, under the prevailing debt burden and low productivity, cannot be guaranteed going forward.
Debt-GDP ratio compares the size of a country’s debt to its economy with a view to determining the sustainability of the debt profile as well as the vulnerability of the economy to creditors and repayment obligations.
The ratio which stood at 21.1 per cent early last year was projected to reach 25 per cent at full year 2018. But the Fund indicated that the range is already risky and cannot be guaranteed.
The Fund also harped on the use of the borrowed funds, saying that the channeling of the fund to productive sectors has become necessary to achieve significant impact on the economy.
Financial Counsellor & Director of Monetary & Capital Markets Development at the IMF, Tobias Adrian, declared at a press briefing on “Global Financial Stability Report” that: “Nigeria’s borrowing to GDP is still low but we cannot guarantee the risk going forward given the global economic downturn. The prudent use of the money borrowed is significant to improving the economy.”
In defiance of the grim economic indices that raise alarms over Nigeria’s fragile economy, government insists that the alarms by global institutions and economic analysts over the country’s debt profile are exaggerated, arguing that growth projections are sustainable.
In its report on ‘Nigerian Domestic and Foreign Debt Data’, the National Bureau of Statistics (NBS) said Nigeria’s foreign debt stood at $25.27billion as at December 31, 2018.
Minister of Budget and National Planning, Senator Udoma Udo Udoma, stated at the end of the Federal Executive Council (FEC) meeting last week that Nigeria’s debt profile was within comfortable thresholds, adding that borrowed funds are deployed for infrastructural development.
He said: “Our debts are sustainable. We do have a revenue challenge and we are focusing on that. Once the revenues come up, it will be obvious that we don’t have a debt problem at all.” He said the Nigerian government is working on a number of initiatives to increase the country’s revenues.
“We are looking at initiatives to widen the tax base. We are looking at initiatives to increase efficiency in collections. We are looking at a single window, which will help to increase efficiency, customs collections.
We are looking at many different ways to improve revenue,” the minister said.
The Minister of Finance, Mrs. Zainab Ahmed, participated at the International Monetary Fund (IMF)/World Bank meetings in Washington DC said that the general advice for Nigeria is to prioritize cost-effective policies that would increase resilience to shocks, boost productivity and raise incomes of the bottom 40 per cent of the population.
But she instead advanced proposals for normalization of trade relations among the contending parties and multi-laterism to avoid protectionist sentiments. She also blamed the new environmental and social safeguards framework imposed by the World Bank for slow pace of infrastructural development in Nigeria.
“At the G-24 meeting, I drew the attention of the World Bank to some of the challenges we face in implementing our portfolio like the implementation of the new environmental and social safeguards framework which tends to slow down implementation of our infrastructure projects.
Sen. Udo Udoma said government was working to attract foreign direct investments by promoting potentials for commercial investments in the country, adding that discussions are ongoing on improving the business climate, provision of incentives and enhancement of opportunities for investments in the country.
He called on the International Finance Corporation (IFC) to support Nigeria’s efforts at leveraging private sector capital to fund critical infrastructure development in Nigeria.
Also, the Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele, said he was in liaison with the United Nations to improve Nigeria’s status on financial inclusion as means of boosting domestic productivity.
According to him, the rate of financial inclusion in the country has become rapid, making it possible for the 80 per cent inclusion target to be possible by 2020.
He said the economic policies of the government have earned the confidence of international investors, pointing at rising inflows in the first quarter of the year.
He admitted that the country’s GDP was low, but stressed that Nigeria was still being tipped among the emerging market economies expected to make significant contributions in global economic growth in the year.
“A major take away from this meeting is that although the GDP numbers for Nigeria is low at 1.9 per cent in 2018, I’m encouraged by the IMF predictions that global growth will pick up by second half of 2019 and emerging market economies like India, Brazil, China and Nigeria will help to drive growth.
“This means that a lot of eyes are on Nigeria and we must work hard to aggressively push up our growth numbers. But I’m hopeful that this can be achieved,” he said.
The IMF had warned vulnerable economies of rising financial risks associated with rising downside risks to global growth.
“In countries with high or rising financial vulnerabilities, policymakers should proactively deploy prudential tools or expand their macro-prudential toolkits where needed. These countries would benefit from activating or tightening broad-based macro prudential measures, such as countercyclical capital buffers, to increase the financial system’s resilience.
Pointing at huge debts from issuance of sovereign bonds, the IMF warned that “efforts should also focus on developing prudential tools to address rising corporate debt from nonbank financial intermediaries and maturity and liquidity mismatches in the nonbank sector,” adding that egulators should also ensure that more comprehensive stress tests (that include macro-financial feedback effects) are conducted for banks and nonbank lenders.
“Emerging market economies should ensure resilience against foreign portfolio outflows by reducing excessive external liabilities, cutting reliance on short-term debt, and maintaining adequate fiscal and foreign exchange reserve buffers.”
The find projected economies like Nigerian with great financial vulnerabilities might have to confront short to medium term shocks due to predicted tightening of financial conditions associated with deterioration of positive investor sentiment.
“Looking ahead, there is a risk that positive investor sentiment could deteriorate abruptly, leading to a sharp tightening of financial conditions. This will have a larger effect on economies with weaker fundamentals, greater financial vulnerabilities, and less policy space to respond to shocks.”
In sum, the evaluation of the Nigerian economy at the just concluded World Bank meeting shows the urgent need for government’s economic planners to adopt more efficient financial management strategies that envisage shocks from global economic dynamics and fluctuations in the flow of global financial instruments.
Senator Shehu Sani had last Thursday declared on his twitter handle: “When you borrow money from IMF, they will come and live in your house until you pay them; when you borrow money from China, they will turn you into a tenant in your house until you pay them.”
Domestic economic management plans that center on empowering enterprises to grow local production and deemphasize large scale government borrowing appear to the only option for the country to slide back from the current precipice of economic doom.