Nigerian Debt Crisis Simplified
To most Nigerians, the national debt is synonymous to doom and impending economic crisis, but it’s never as straightforward and gloomy as that. National debt otherwise known as sovereign debt is usually gotten from other countries, commercial banks, or even individual investors and is used to finance projects that will bring economic growth which will eventually be used to pay back the debt along with any interest that may accrue.
This system is somewhat similar to corporations or an individual taking loans from banks to finance a business from which proceeds would be used in repayment of the loan. This explains why the world’s largest economies: US, U.K., France, Italy, Japan, Germany are also among the largest debtors.
As for developing economies like Nigeria, a lot of foreign debt is needed to stimulate economic growth; but investors are always reluctant to give developing countries loans because of the unpredictability that accompanies it. For this reason, a lot of developing countries have to keep up their credit-worthiness by servicing the debts as and when due. Debt only becomes an issue when it is no longer sustainable.
A sustainable debt is one that can be serviced by the debtor country and at the same time, give room for economic growth in that country. As for Nigeria, the revenue-debt ratio for the first quarter of 2020 was 99%. This means that for every 100 naira earned, 99 naira was spent on servicing debts; meaning that Nigeria is fast approaching bankruptcy. Even with this issue at hand, the Federal government recently approved a loan of $22 billion for further servicing of older loans and to provide stimulus to the economy. When put together, this leaves Nigeria at about $85 billion or 33 trillion naira in debt. Of course, this ugly reality is the rationale for the apprehensions held by many Nigerians about debt but more importantly should be the answer to how we got here.
There are several reasons for Nigeria’s unsustainable debt. First being over-dependence on export for revenue. The sharp decline in global oil prices spelt doom for revenue in Nigeria because crude oil made up 65% of revenue. This over-dependence on exports leaves Nigeria at the mercy of factors in the international markets out of her reach; a good insurance against this would be the growth of the domestic market and internal economy through trade.
Another cause of the unsustainable debt is the increase in expense for debt servicing caused by the constant fall in the naira. When put up against the foreign currency in which the debt is to be paid, exchange rates make the debt repayment more expensive.
Besides the reasons above, another major player in unsustainable debt in Nigeria is corruption. You can hardly make any reference to Nigeria and her various problems without mention of corrupt practices in government. Yet again, corruption in the public sector has seen to the poor implementation of national debts on frivolous projects such as the proposed 37-billion-naira renovation of the National Assembly which will not bring about any form of economic growth useful in the repayment of debt.
From all that has been stated, the right approach by Nigerians towards national debt shouldn’t be that of apprehension of it as evil and a marker of economic downturn but to hold the government accountable. Debt in possession of a responsible government is a tool for economic growth and prosperity.
