Endless Borrowing: Experts worry, Okonjo-Iweala, Ahmed Differ on Nigeria’s debts

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Endless Borrowing: Experts worry, Okonjo-Iweala, Ahmed Differ on Nigeria’s debts

On Wednesday, Zainab Ahmed, the Minister of Finance, Budget, and National Planning, and Dr Ngozi Okonjo-Iweala, the Director General of the World Trade Organization, disagreed over the country’s debt-to-GDP ratio.

Experts who spoke with our correspondents expressed concern about the country’s rising debt burden.

While Ahmed estimated the debt-to-GDP ratio to be 29%, Okojo-Iweala claimed it had climbed to 35%.

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Both the minister and the head of the World Trade Organization spoke at the African Development Bank’s High Level Knowledge Event, which took place digitally on Wednesday and was titled “From Debt Resolution to Growth: The Road Ahead for Africa.”

Nigeria planned to borrow more money to fund its infrastructure capacity, according to Ahmed.

This is despite calls for the government to stop borrowing and focus on other ways of obtaining funding for the country’s infrastructure needs.

Nigeria’s overall public debt portfolio increased from N12.12 trillion in June 2015 to N33.11 trillion as of March 31, according to the Debt Management Office.

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According to Ahmed, the government is implementing fiscal discipline in order to increase its fiscal space so that it can continue to service its obligations and borrow more to develop the country’s infrastructural capacity.

“We have roughly a 29 percent debt-to-Gross Domestic Product ratio as of Q1 2021,” she remarked. In terms of debt, we are still in good shape and can continue to do so.

“We’re having trouble generating revenue, which is necessary to pay our bills. We’ve implemented a number of measures to boost domestic revenue.

“We are reducing government spending by cutting expenses, improving the ease of doing business, and using private sector resource capacity to invest in infrastructure.

“We are working to improve public financial management transparency, and we are implementing fiscal discipline to enlarge our fiscal space so that we can continue to service our debt and borrow more to develop our infrastructure capacity.”

Ahmed further stated that some states’ debt profiles were not included in the total debt profile, and that the federal government was working to fix this.

“In Nigeria, we have been putting in a lot of effort on a quarterly basis to report all of our loans as well as the debt service.

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“For the sake of transparency, we are currently working on including other state-owned debts that have not been included in public debt. It is crucial and will assist us in the future.”

However, Ngozi Okonjo-Iweala, who also attended the AfDB’s session, differed with Ahmed on the nation’s debt-to-GDP ratio.

The WTO boss who had been Nigeria’s Minister of Finance in the past said the nation’s debt to GDP ratio had risen from 29 per cent to 35 per cent.

She said, “Middle-income African countries have also seen their debt burdens increase sharply. Amid falling prices and demand for oil worldwide, Nigeria’s debt to GDP ratio rose from 29 to 35 per cent; Algeria from 46 to 53 per cent, and Egypt from 84 to 90 per cent, Angola from 107 to 127 per cent.

“Debt to GDP ratios also risen for non-oil exporters including South Africa from 62 to 77 per cent. Morocco has increased its share of the market from 65 to 76 percent.”

Okonjo-Iweala also said that scarce foreign exchange in certain African countries was creating scenarios where the governments were using scarce forex to fund the fund debt repayment rather than on capital investment.

“Even where debt to GDP or where debt to export ratios were not very high, tighter access to dollar financing because of the COVID-19 crisis means we are already seeing places where scarce foreign exchange is going to fund debt repayment instead of capital investment,” she added.

A professor of economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, described as a cause for worry the amount being spent by the government on debt servicing.

He remarked, “What is crucial is not simply the debt-to-GDP ratio but the ability to pay, and we are presently in major issue with payments.

“It’s understandable if they want to borrow money from within the company. But if they are going international again, I think it is not proper since now the level of international borrowing is what is giving them issue now.

“We are selling oil and producing money but we are using that money to settle the debts that we owe, and that is sad.

“As a result, one cannot help but be concerned. As a result, rather than continuing to borrow, the government should focus on creating wealth. If they really need money, they should take out a domestic loan.”

Prof. Akpan Ekpo told one of our correspondents that the government needed to be more transparent about borrowing right away.

“There is nothing wrong with borrowing,” he continued, “but you need to borrow to fund infrastructure projects that will pay for themselves.”

“The debt-to-GDP ratio can be deceiving since we debased our currency, making the denominator far larger than the numerator. Instead, we should look at debt servicing to GDP and debt to revenue ratios, both of which are alarming at the moment.”

“FG needs to conduct more feasibility studies on major infrastructure projects before borrowing money to fund them,” Ekpo remarked.

“Long-term, infrastructure improvements such as power and others have good multiplier impacts. They also need to be more transparent when it comes to debt acquisition.”

Akinwumi Adesina, President of the African Development Bank, stated that Africa’s cumulative total debt was greater than its cumulative government revenue.

According to him, Africa’s total outstanding debt in 2019 was $841.9 billion dollars, while total government annual revenue was $501 billion dollars.

“Africa’s GDP fell by 2.1 percent in 2021,” Adesina remarked. By 2021 and 2022, growth is expected to return to 3.4 percent. Africa’s total GDP fell by $145 billion to $190 billion.

“On the continent, millions of people sank into abject poverty. By the end of 2021, 39 million Africans could be living in poverty.”

According to Adesina, debt-to-GDP ratios across the continent are predicted to increase by 10 to 15 percentage points, from 60% in 2020 to 75% in 2021.

He went on to say that 17 of the 38 African countries for which debt sustainability data was available in 2021 were in severe straits.

He said that twelve countries were at a moderate risk of debt distress, six were already in serious debt hardship, and one country was at a low risk of debt distress.

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