Both federal and state governments have continued to pile up new debts even as crude oil price and revenue maintained a general uptrend since 2017. Within the first nine months of the year, total public debts rose by more than N3 trillion to stand at N20.37 trillion, according to the figures issued by Debt Management Office (DMO).
Nigeria’s debt profile maintained an upward creep until 2015 when federal and state governments amassed a whopping N4.8 trillion in one year, shooting up the total debt figure by 38% to N17.36 trillion. Despite the improved oil price and earnings performance in 2017, the debt stock had grown by more than 17% at the end of September.
Reasonable estimates indicate that government borrowing at the end of 2017 may stand at twice the N11.5 trillion closing figure just three years ago in 2014. In six years from 2011, total public debts look good to triple. During the same period, crude oil price and government revenue reached new peaks.
That would mean that in the two and half years of the present administration, federal and state governments have incurred new debts equivalent to all the debt stock outstanding at the end of 2013.
Government revenue and debt profiles show a mismatch of the normal function where debt increases when revenue declines and drops when earnings improve. The pattern shows high dependence on debts irrespective of revenue performance. With improving crude oil price and earnings, oil price benchmark for the budget was raised last year and exceeded and yet new debts have piled up.
Inability to curtail new borrowings in times of oil price and revenue gains is the explanation given for government’s failure to build up adequate buffers to tide the economy over the periods of falling oil price and revenue. This has continued to leave both federal and state governments just one step away from fiscal crisis.
Debt service obligations have expanded with rising debt stock and this has continued to limit the ability to employ the improved earnings to drive economic growth and development. In 2017, N1.7 trillion or 23% of the federal government’s aggregate expenditure was devoted to debt servicing. Adding debt servicing to non-debt recurrent expenditure of about N3 trillion, government’s entire revenue was virtually consumed. For several years running, every capital spending budget has involved new borrowing. Only a fraction of the vote gets released from year to year.
In the 2018 budget, debt service provision has risen to N2.01 trillion or 23.3% of the proposed aggregate spending. Non-debt recurrent expenditure and debt servicing add up to more than 83% of Federal Government’s estimated total revenue of N6.607 trillion. New borrowing of N1.7 trillion is yet planned for the year. Deficit budgeting and new borrowing are also the general feature of state governments’ budgets for the current year.
With the dominance of recurrent expenditure, Sanusi Lamido Sanusi, former governor of the Central Bank, made it clear to government that its finances lack the structure needed to channel improving revenue into productive activity. That faulty structure hasn’t changed yet. Oil booms therefore come and go but Nigeria continues to lack the critical force of economic development.
In June last year, the monetary policy committee of the Central Bank raised a red flag against the federal government for crowding out the private sector with excessive borrowing in the credit markets. That was a note of warning that government’s action was undermining rather than reinforcing economic recovery. With high domestic bond yields and rising debts, government is seen to be building debts to unsustainable levels.
Improving oil price and revenue offer Nigeria yet another chance to restructure its finances to stimulate productive functions in the economy. Crude oil price outlook remains positive for 2018 and with that, government revenue targets for the year look likely to be exceeded.
With the current pattern of dominant recurrent expenditure with huge debt service, government isn’t yet positioned to avail the nation and its people of the new opportunity. This exposes the economy to a great deal of downside risks.