Service charge

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By Jérôme-Mario Chijioke Utomi

Similar to a February 16, 2022 media report in which economic experts urged the federal government to seek a debt moratorium and reduce the cost of governance to reduce funds spent on servicing debt, as this is the best option at the moment as this will allow the government to suspend payments for the time being and redefine strategies, in particular the government cannot continue to service its growing debt profile at the expense of meeting needs competitors of the population, a similar expert warning has recently been issued by economic analysts that soaring federal government borrowing could end up stifling the country if not mitigated.

Speaking in Akure, capital of Ondo State, at the 32nd Annual Seminar for Financial Correspondents and Business Writers on the topic Exchange rate management and economic diversification in Nigeria: the open option, Experts have hinted that, in line with government borrowing plans, new debt of N6.3 trillion could be added to the current debt stock of N39.556 billion ($95.779 billion as of December 31 2021) to eventually push the country’s total debt stock to N45.86 trillion by December 2022.

Despite this unhealthy trend, they argued that it is high time for the country to invest more in strengthening local production and export-oriented infrastructure before the huge debt burden sinks the country.

Indeed, from the explanations/concerns expressed by these experts, this article clearly agrees that “Nigeria’s stock of debt has finally become a problem that calls for a more drastic approach to help the fiscal and monetary authorities get out of the lurch.” ‘national economy in the doldrums’.

But what has however raised concerns is that despite these prophecies of foreknowledge which deal with what is certain to come and prophesy of denunciation, which in turn says what is to come if the present situation is not not modified; Acting as information and warning respectively, the federal government under President Muhammadu Buhari has become even more entrenched in borrowing, ignoring these warning signals.

There are so many factors that obviously qualify as a tragedy, including the federal government’s stubbornness and failure to follow or heed the warning signs.

First and very basic, in 2020, one of Nigeria’s reputable national newspapers in its editorial commentary, among other observations, noted that Nigeria will face another round of fiscal headwinds this year with a mix of $83 billion debt dollars; the increase in recurrent expenses; increase in the cost of debt service; sustained drop in income; and an approximately $22 billion debt plan awaiting legislative approval.

It could be worse if anticipated shocks to the global economy, such as Brexit, the US-China trade war and the Federal Reserve’s interest rate policy, turn sour.

The outstanding national debt, which currently stands at $83 billion, comes with a huge provision for debt service exceeding 2.1 trillion naira in 2019, but is expected to increase in 2020. This challenge stems from the country’s income crisis, which has remained unabated in recent years. five years while borrowing has persisted, an indication that the economy has been primed for recurring difficult results, the report concludes.

Secondly, a recent news report states that the Federal Government earned a total of N3.25 trillion Naira in 2020, of which it spent a total of N2.34 trillion Naira on debt servicing during the year. This means, the report points out, that 72% of government revenues are spent on servicing the debt. It also puts the debt service to government revenue ratio at 72%.

Third, it is in the news that PricewaterhouseCoopers, a multinational network of professional services firms operating in partnership under the PwC brand, in a report titled Nigeria Economic Alert: FGN 2021 Budget Assessment warned that the rising cost of debt servicing will continue to weigh on the federal government’s revenue profile.

He said: “The actual debt servicing cost in 2020 was N3.27 trillion and was around 10% higher than the budgeted amount of N2.95 trillion. This brings the debt-to-revenue ratio to around 83%, nearly double the 46% budgeted. This implies that about 83 naira out of every 100 naira earned by the federal government was used to settle interest payments for outstanding domestic and external debts during the reporting period. In 2021, the FG plans to spend N3.32 trillion to repay its outstanding debt. This is slightly higher than the 2.95 trillion naira budgeted in 2020.”

Today, such fears raised cannot be called unfounded, just as this author does not need to be an economist to know that we as a nation have become a high-risk borrower.

And even as the nation embarks on a borrowing spree and accelerates down the ‘borrowing path’, and at a time when the World Bank reports that ‘nearly half of sub-Saharan Africa’s poor live in just five countries: and they are in this order, namely; Nigeria, Democratic Republic of Congo, Tanzania, Ethiopia and Madagascar, the situation becomes more painful when one remembers that no one, not even the federal government, can really explain the purposes of these loans and whether they are used in the interest masses.

Take, for example, it would have been understandable that these loans had been taken out to build a standard railway system in the country that would help the poor peasants in Benue/Kano villages and other isolated villages located in the landlocked regions of countries, move their produce to food deprived southern towns in a way that will help poor farmers earn more money, contribute to lower food prices in Lagos and other towns through l impact on market functioning, increase household welfare in Kano, Benue, Lagos and others while improving food security in the country, reduce the daily stress/pressure exerted on Nigerian roads by articulated/transport vehicles and significantly reduce traffic accidents on our major highways.

Again, it would have been excusable if the loans were deployed to revitalize the country’s power sector, to reintroduce a sustainable energy roadmap that will erase the epileptic power challenge in the country and at its place will restore the health and vitality of the socio-economic life of the country. while improving the country’s small and medium-sized businesses.

What about the country’s refineries?

This article now nostalgically recalls that one of the popular demands during the January 2012 protest against the removal of fuel subsidies under the administration of President Goodluck Ebele Jonathan was that the federal government take action to strengthen the governance of business of the Nigerian National Petroleum Company (NNPC) Limited as well as in the oil and gas sector as a whole.

This is due to the belief that weak structures have made possible the endemic corruption in the management of the downstream and upstream sectors of the oil and gas industry.

The current administration, as part of its campaign promises in 2015, agreed to secure a better deal for Nigerians six years after that request was made and Jonathan left, the three government-owned refineries in the countries have not been able to operate at full capacity. as promised by the current administration.

Today, if there is anything Nigerians want the FG to accomplish quickly, it is to keep the refineries running optimally and to make the NNPC more accountable to the people. What happened under President Jonathan has become a breeze compared to what is currently happening in the oil/gas and power sectors in Nigeria.

What the above tells us as a country is that more work needs to be done, more reforms need to be done; that as a nation we are poor not because of our geographic location or lack of mineral/natural resources, but because our leaders do not make decisions that promote prosperity. And we can’t solve our socio-economic challenges with the same reasoning we used when we created it.

Admittedly, this article may not fully unveil the answers to these challenges, but there are a few areas from which a nation wishing to grow can start.

The first that comes to mind is the urgent need to diversify the nation’s sources of income. Income diversification development experts say will provide options for the nation to reduce financial risk and increase national economic stability; because a decline in one particular source of income could be offset by an increase in other sources of income.

Finally, in this time of economic vulnerability, a new realization that should not be left to the political winds is the warning from experts that accumulated debt can hamper a country’s development, especially when the major part of the income generated is used for debt service.

Utomi Jerome-Mario is the Program Coordinator (Media and Public Policy), Social and Economic Justice Advocacy (SEJA), a Lagos-based non-governmental organization (NGO). He can be contacted via Jeromeutomi@yahoo.com/08032725374