THE REALITY BEHIND NIGERIAS DEBT BURDEN

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Status: In Progress  |  Genre: Editorial and Opinion  |  House: Booksie Classic

...A critical look at the true state of Nigeria's current national debt position; the worries, possible implications and the way forward.

A recently released data shows that Nigeria's debt burden is now in excess of $55 billion!
Now some might argue that the country has got enough buffer and cash flow to service that figure and more.
Some may also say that our net debt to GDP ratio is still very much low, and maybe cite other reasons but before u draw up any conclusion, let's put a few things in their right perspective;

According to the just released report by the country's bureau of statistics, the Nigerian economy grew by 0.83% in 2017 following from a 1.58% contraction in 2016.
Before this time, actual GDP came down from a previous figure of $481.1 billion the preceeding year to close at $405.1billion in 2016.
Now, as a general rule, the acceptable maximum debt to GDP ratio for developing countries (for which Nigeria is one) is 40%. ...and if we have to go with that figure, then 40% of $405.1 billion will compute as 40/100 x $405.1 = 0.4 x $405.1 = $162.04 billion.
This is by far higher than the $55 billion which is presently our national debt burden. ...and so some may want to infer that we still have enough room to borrow in excess of over $107 billion (i.e. $162.04 - $55) and until then, there's really no course for alarm.
Well, am sorry to disappoint u... because there's actually a lot to worry about! How, u may ask? Let's dig in on a few more estimate...

Using the figures above;
our debt to GDP ratio would be $55/405.1 x 100%, which is approx 13.6%.
But even with a tax revenue in excess of N4 Trillion in 2017, Nigeria's tax to GDP ratio currently stands at an average of 6%.
That paltry 6% figure is one of the lowest in the world especially among countries with the same and even lower socioeconomic parameters.
...the likes of Ghana and Morocco have a tax to GDP ratio in excess of 21% while Zimbabwe, South Africa and Egypt to mention just a few have theirs at an above 30% average.
With a far less impressive 6% tax to GDP ratio, its clear that 2 things are playing out;

1) Most of the proceeds from the debt that Nigeria has so far raised have not been spent on Capital expenditure but on recurrent ones (what I call silly things that don't generate any revenue).
and
2) Nigeria has not been generating well enough tax to deleverage its debt. ...it's clear from the figures I've put up that we need to generate more than twice as much cash to help strike a balance on our net debt to GDP, and thrice as much to put us in a better footing.

Frankly, I doubt if this government can sustainably (note the use of the word sustainably) grow the economy without improving on this indices. ...especially given that we lack a diversified economic base.
We urgently need an aggressive but coherent model to expand on our income stream, a strong diversification in revenue drive and a higher spend on infrastructural development.

Part of the solution to tax return would probably depend on how effective the scheme VAIDS, as lead by the ministry of finance in conjunction with the tax collection and regulatory bodies FIRS and JTB would be, and if we can triple our cash receipts (though I think that this might be practically near impossible given the country's history of policy flip ups)
However, this issue calls for some serious action. Otherwise we might keep borrowing to service our debt. ...and the whole circle will continue until we probably hit the 40% stipulated maximum limit.
But the truth is that we don't even need to hit the 40% suggested threshold, because even a 20% debt burden could have a lot of negative impact on the economy given that we are just pulling off from the chains of a recession whose 'shadow' can still be felt around the economy.
Unfortunately the many decision-making of this government particularly on the fiscal side is not helping the situation.

There are lots to say, but I can only pray and hope that things don't get worse from here.

May God help us!


Submitted: March 03, 2018

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