…. High interest rates, rising debts bad for economy–Sanusi
….Says calls for debt relief in order
Nigeria’s external debt to total revenue increased from 8 per cent in 2011 to 400 per cent in 2020, a former governor of the Central Bank of Nigeria (CBN), Sanusi Lamido, has revealed.
Sanusi said this disclosure while participating in an online roundtable discussion tagged: “Debt Relief for a Green and Inclusive Recovery in Nigeria”, organised by Heinrich Böll Foundation.
The former CBN governor said Nigeria has a debt services ratio of up to 90-96 per cent but there are certain other elements of debts that analysts have not paid attention to.
“If you go through the CBN statistical bulletin, in 2011, the total federally collected revenue from all sectors was 18.9 trillion naira at 165 naira to the dollar. This will have placed federally collected revenue in 2011 at $55.5 billion.
“Meanwhile, debt at that time was 5 billion so we had an external debt to external revenue of about 8 per cent in 2011. By 2020 we have an external debt of about $33.4 billion but all revenues in 2020 were about $8.3 billion. So it has moved from 8 per cent to 400 per cent between 2011 and 2020.
“And this is a serious red flag that I’ve not seen being pointed out in the conversation around debt sustainability especially given the fact that exports are yet to be diversified at the book of our revenues from the oil sector, given what we’ve seen and what have been discussed today about the prospect of hydrocarbons as we move into a greener world,” he said.
Nigeria’s debt position has been a source of concern for development experts in recent years, especially in the midst of dwindling oil revenue.
Sanusi said in measuring debt sustainability, the debt to gross domestic product (GDP) ratio is a useless metric. “You do not service debt out of GDP, you service debt out of revenues,” he said.
“If only 20 per cent of your GDP is paying taxes, if you have a debt to GDP ratio of 20 per cent, you are likely to have a debt service to revenue ratio of 100 per cent.
“So, for a long time, I have been concerned about this idea that having 25, 30 or 35 per cent debt to GDP ratio is fine, because you’ve got countries that are activating 90 per cent,” he said.
He added that in the countries where debt to GDP numbers are high, tax is a major component of government revenues.
Meanwhile, Mr Sanusi explained that high interest rates with high debts could lead to difficult financial situations.
He also explained further that another key part of the nation’s debt profile is the components of bilateral loans, of which China is a major player, with $3.2 billion of Nigeria’s $4.1 bilateral debt, that’s about 78 per cent.
He explained that any talk about debt sustainability has to involve China as a very dominant player.
The former CBN governor agreed that the call for debt relief is in the right direction, but the nation needs to show serious commitment and review the structure of its government and economy.
He noted that as countries begin to lift COVID-19 restrictions on travels, there will be increased demand for forex on travel, further putting pressure on the country’s exchange rate.
“When the world reopens and people start travelling, that is going to lead to an increase in demand on forex for travel and that is going to exert further pressure on the balance of payments.
“Now, these are the kinds of considerations I think we need to bear in mind when we talk about the sustainability of a debt situation.
“Honestly, I think debt relief is very necessary if this country is going to have the fiscal space to pursue any kind of developmental objectives. We can’t be spending 90 or 100 per cent of our revenue on debt service and don’t have anything to invest in development.”
According to Sanusi, the country needs to invest in education and agriculture, stressing that these two sectors will help play a key role in lifting Nigerians out of poverty.
Part of the problem Nigeria faces, he said, is that there has been significant under-investment in education and health care, and the productivity of agriculture.
The former chief executive of First Bank also explained that the rapid rate of growth in population is a source of concern, adding that the country needs to have social policies around demographic growth.
“There are parts of this country where the fertility rate is more than eight (8) live births per woman, and again some societies are also polygamous,” he said.
“Now there’s no way that you are going to continue growing at 3.4 or 4 per cent when your economy is growing at a slower rate and expect to deal with poverty. And that is an unsustainable model.”
He also noted that setting up factories could help lead to economic growth.
He said, “One of the issues I have with people when they talk about removing the subsidy on electricity tariffs and how the tariffs are going to go on to avert some problems is that we worry so much about tariffs because we use electricity for consumption and the buck of the population is yet to understand that electricity is an import into production. You can’t burn it.
“So, if you take away the subsidy by having a cost recovery tariff, you could put that money into small and medium enterprises that will turn that electricity into real production of goods and services and lift people out of poverty.
“Now, it doesn’t have to be fossil fuels electricity, you can in the same way, for example, use these bonds to encourage setting up factories to produce solar panels. People talk about renewable energy but if you are going to be importing solar panels from China or the UK, it is not as effective as if you set up factories to produce these panels in Nigeria. You’ve got all the raw materials you need to produce solar panels.
“So set up factories, produce these panels and then the subsidy comes in, in the form of making these panels affordable and the kind of financing you give to the micro-enterprises to turn this renewable energy into goods and services.
“Not just about producing renewable energy that will continue to be fueling television sets, water kettles, video games, no; we want electricity so that micro, small and medium enterprises can begin to generate.”
Sanusi argued further that a very smart way of dealing with debt relief is to effectively ensure that the government puts in the right policies and that money goes into the right areas that will lead to sustainable development.
He noted that what happened when debt relief was granted to Nigeria in the past was that Nigeria went back on spending on overheads, unnecessary petroleum subsidies, and subsidies on fertilisers, which has not helped the country.
“What happened in the past was that we had this debt relief and then we went back to borrowing money, spending on salaries, overheads, and unnecessarily petroleum subsidies all sorts of fertilisers sub discount and those are the kind things that need to end,” he lamented.
“But we also need to bear in mind that as we take them out, the way to minimise impact is to address the real SDGs considerations, education, healthcare, renewable energy accompanied by training, the productivity of agriculture and this is really about the policy deficit that we’ve had in the last few decades,” he said.
Reacting to Sanisi’s statement, international business & project development consultant at Ant Hill Concepts Limited, Emeka Okengwu said the debt situation of Nigeria is a Caatct-22. Explaining, he said revenue is a function of productivity and taxes, especially when it comes to government revenue. He said without infrastructure the country would not be productive, hence little tax revenues.
He stated that considering the fact that Nigeria has suffered over two decades of decline in investments and infrastructure there cannot be adequate revenue without infrastructure. He further posed the question: “Are we borrowing for the right reasons? This is where the conversation should be focused on.
“The right reasons would be that you are borrowing to stock up your infrastructure deficit. Is that what we are doing, or are we borrowing to pay salaries.
“The debt situation is bad, there is no doubt about it. But if you actually look at the debt to GDP against pure economic indices, it’s not as bad as it may seem. But what is bad is your ability to repay, and this ability to repay ties to revenue.
“So the question is do we have a choice not to borrow. And if we are borrowing to do infrastructure, how else would we do it. Also, if this infrastructure is critical to productivity and revenue, is there any way we can get around the revenue programme without infrastructure. That’s the paradox.”