20 months after coming out of the second economic recession under the Buhari administration, Nigeria may be heading into the third recession, the most under any previous administration in the sixty two year history of Nigeria.
Nigeria entered her first recession under the current administration in 2016.
NATIONAL ECONOMY reports that with debt servicing exceeding revenue, low productivity and near bankruptcy of the economy, another recession looms.
Corroborating this view, economists told NATIONAL ECONOMY yesterday why the economy might start recording negative growth.
Lead partner of SBM Intelligence, Cheta Nwanze, had remarked recently that Nigeria currently spends N1.19 in debt service for every N1.00 she earns. The current state of the economy, as well as debt to revenue ratio has made some economists sound the alarm that another recession might be looming if the trend is not reversed.
Nwanze noted that the effects of bankruptcy are not being felt at the moment because of lagging effects, which comes as the lead time after an effect.
Lecturer at Adeleke University, Professor Tayo Bello, told NATIONAL ECONOMY that the situation where the federal government is paying more on debt servicing than it earns is heading to recession because soon, the government may not be able to meet its debt obligation. He added that Nigeria may soon get to that point where the government may force banks to make remittance payments to individuals in naira, which may discourage the inflow of hard currencies, which the country needs.
He said further that once the situation of non-payment of debt obligations begins to hit the private sector then the economy would be in deep trouble.
Bello noted that the only way out of the situation is the removal of fuel subsidies and reduction or halt of insecurity, where the federal government is expending so much money.
Professor of Management, Dangote Business School, Bayero University, Professor Murtala Sabo Sagagi said, “With debt servicing exceeding revenue, Nigeria is heading not only towards a debt crisis but complete economic collapse by 2023.
“Over the last 7 years, the government recklessly resorted to debt financing and overlooked all viable growth opportunities, leaving little room for revenue generation.
“The high appetite of the government to borrow without commensurate effort to cut costs of running government, curb corruption, develop infrastructure and energy sector and stimulate inclusive growth is the painful legacy of this administration, which only a visionary and well-intentioned successor can overcome.”
Chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), and former director-general of Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf said Nigeria is not yet bankrupt, but at the brink of being bankrupt, considering the economic indices being revealed, including that the federal government is spending more on debt-servicing than is being generated in revenues. Yusuf noted that that is aside from other overhead costs of the government.
He stated that the situation may lead to a debt trap since the federal government may have to borrow more to bridge her deficit and financing of debt servicing, which may in turn lead to further inflation; and with more supply of money in the economy, cause a spiral, which may scare investors and further plunge the economy into stagflation.
The secretary-general of the International Institute of Professional Security (IIPS), Dr. Abdullahi Mohammed Jabi, who expressed fear that the Nigerian economy may be regressing into a third recession in the life of the current administration, blamed the lopsided debt service to revenue ratio on the local currency that has been on a roller coaster over the past several months. He stated that much of this is as a result of bad governance, which is beginning to boomerang on the country’s socio-economy.
However, chief executive of Anthill Concepts Limited, Dr. Emeka Okengwu, cautioned that Nigeria is not bankrupt yet, a situation which would connote insolvency. He said the fact that Nigeria is still meeting her debt obligations means there is no such situation, although the economy is challenged as a result of insecurity, climate change and other factors. He added that with Nigeria still producing oil that is not likely to happen.
He noted, however, that if the country becomes insolvent, it might go into recession, depression or stagflation.
NATIONAL ECONOMY notes that internal and external debts make up national debt, commonly referred to as sovereign debt. External debts are foreign-currency-denominated bonds issued by the government and sold to foreign investors. Internal debts are debts owed to those within the country.
Internal debts can be funded by fiscal and monetary policy- by raising taxes and printing more money, but external debts can divert funds away from other revenue-generating activities since they must be paid in foreign currency, which the government does not control.
NATIONAL ECONOMY also notes that the country going bankrupt, in truth, is impractical. When a country fails to repay its debts, it does not go bankrupt; instead, it defaults on the loan. Second, the government, not the country, defaults.
However, in the event of Nigeria defaulting on her debt repayment, getting out of the woods would require economic austerity measures, which would further hurt the already hurting Nigerian masses. Besides, the more credit risk Nigeria becomes the higher interests she would pay on her debt servicing.
Furthermore, government defaults result in soaring inflation, unemployment, and political pressure on the defaulting government, just as they do in any other crisis.
Because domestic banks hold the majority of domestic debt, bank runs occur as a result of a lack of faith in the financial system. Bank runs occur when a large amount of money is taken out of a bank as a result of public panic and lack of faith. Capital controls are in place to prevent this, with the government attempting to limit the amount of money that each depositor can withdraw.
Member nations of the IMF frequently seek a bailout from the IMF before defaulting on their loans, as the IMF not only provides financial resources but also technical experience to handle the bailout programme. However, bailout money never comes without strings attached, such as austerity (reducing spending), currency depreciation, and trade liberalisation, all of which are outlined in the Washington Consensus.
NATIONAL ECONOMY notes that those are the policies the Buhari administration negates.
