Against the backdrop of mounting criticism over Nigeria’s debt sustainability, the Minister of Finance, Zainab Ahmed, has said the Federal Government is borrowing “sensibly” to cater to the country’s infrastructure needs.
But some analysts and economists who spoke to Vanguard yesterday disagreed with this position on the grounds that the country’s revenue earning capacity cannot carry the debt burden.
However, addressing a press conference on Nigeria’s latest gross domestic products, GDP, outing Ahmed said if Nigeria does not invest in infrastructure, “we will regret it.”
As of March 2021, Nigeria’s total public debt had hit N33.1 trillion, while an additional N5.6 trillion may soon be added to the debt burden on account of FG’s 2021 borrowing plans.
Commenting on the concerns, the minister stated: “We are borrowing sensibly and we are investing in rail and other infrastructure; If we do not do these investments, we will regret. These investments will return revenue in the future.”
‘Our debt situation not sustainable’
But an economist and private sector advocate, Dr Muda Yusuf, immediate past Director-General, Lagos Chamber of Commerce and Industry (LCCI), stated: “The current debt challenge is about sustainability. A situation where about 80 percent of actual revenue is used to service debt is not sustainable.
“We need a comprehensive review of the debt management framework. This would require close scrutiny of government expenditure and revenue optimization options.
“Of course, there is merit in borrowing to fund infrastructure, but it is also a problem if our actual revenue can hardly cover our recurrent expenditure. The situation calls for major expenditure reforms especially around the cost of governance.
“Policy and regulatory reforms are also imperative to boost investors’ confidence, accelerate growth, and impact positively on revenue and job creation.”
Also, another finance expert, Professor Uche Uwaleke of Nasarawa State University, Lafia, who is also the President of the Association of Capital Market Academics of Nigeria, said: “Borrowing for infrastructure is not a bad idea. No doubt, there’s been a noticeable improvement in transport infrastructure, especially railways. The challenge is that government revenues have not measured up and so the burden of debt servicing has continued to mount crowding out development funds in the process.
“Faced with this challenging situation, the government is advised to engage the Private sector more in the provision of physical infrastructure while deploying scarce resources effectively to human capital development.”
‘Nigeria neck-deep in financial mess’
David Adonri, Managing Director, Highcap Securities, said: “Through its reckless external borrowing, the Federal Government has already forced Nigeria into a foreign debt trap. We are already neck-deep in a financial mess, judging from the debt service ratio which is over 90%. We cannot rule out sovereign default in due course if new foreign loans are not taken to meet repayment obligations.
“External borrowing to develop infrastructure is unwise. No economy that is building to last does that. Well-managed economies issue domestic debt to finance infrastructure development. Foreign investors can invest in such debt in local currency and will be paid back in domestic currency. By this, the government will not be saddled with foreign debt obligations.
“External borrowing to develop infrastructure is unwise. No economy that is building to last does that. Well-managed economies issue domestic debt to finance infrastructure development. Foreign investors can invest in such debt in local currency and will be paid back in domestic currency.
“By this, the government will not be saddled with foreign debt obligations. The government is also approaching the infrastructure development programme wrongly. The effort ought to start with the development of the engineering infrastructure (Technical education, Metallurgical Industry, Electric Power Industry, Chemical industry, and Energy industry) that will give the economy, the heavy industrial base which will domestically generate secondary infrastructure (Roads, Rail, Ports, Schools, and Hospitals). With an emphasis on secondary infrastructure, in absence of primary infrastructure, the economy cannot be domesticated. It will still remain import-dependent; a malaise they are wrongly trying to cure.
“Finally, through appropriate public policies, the private sector can develop infrastructure and hence assume the attendant liabilities. Other than debt, other financing options like Investment Trust Funds can be used to finance infrastructure.”