By Bassey Udo
Despite all the fiscal interventions by the Federal Government to stimulate the recovery of the country’s economy from the pangs of the coronavirus pandemic, the president of the African Development Bank (AfDB), Akinwumi Adesina, says the economy would continue to struggle except something was done to drastically adjust the country’s debt to revenue ratio.
The government has continued to accumulate debts through taking more loans ostensibly to provide critical infrastructure to boost the growth of the economy.
The Debt Management Office puts Nigeria’s aggregate public debt, consisting those for the federal and state governments currently at about $36 billion.
Fresh borrowings as proposed in the 2022 Budget is at over N5.49trillion, budget deficit at about N6.26trillion, and debt service at about N2.184trillion.
Yet, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said on Friday in Abuja at the presentation of the 2022 Budget details that the Buhari administration resorted to borrowing to finance the country’s fiscal gaps.
“We believe that the debt level of the Federal Government is still within sustainable limits.
“Borrowing are essentially for capital expenditure and human development, as specified in Section 41(1) of the Fiscal Responsibility Act 2007.
“Having witnessed two economic recession, we had to spend our way out of recession, which contributed significantly to the growth in public debt,” the minister said.
She said the country’s economic recovery has been sustained from about minus 6.1 percent gross domestic product in the second quarter of 2020 to a positive 0.11 percent GDP in the last quarter of 2020 and 0.51 percent in the first quarter of 2021 and the latest 5.01 percent in the second quarter of 2021.
Nigeria’s debt-to-GDP ratio as at August 2021 stands at about 21.6 percent, the Minister said in her presentation, describing it as one of the lowest among Africa’s leading economies, namely Angola (127.1 percent), Egypt 90.2 percent, Ghana 78 percent, South Africa 77.1 percent, Kenya 68.7 percent and Senegal 65.8 percent.
But, the AfDB said at the opening of the two-day Mid-term Ministerial Performance Review Retreat at the Presidential Villa, Abuja on Monday that despite Nigeria’s debt-to-the GDP ratio remaining moderate, the government must take decisive action to tackle its debt challenge to allow the economy to grow.
“Nigeria must decisively tackle its debt challenges. The issue is not about the debt-to-GDP ratio, as Nigeria’s debt-to-GDP ratio at 35% is still moderate. The big issue is how to service the debt, and what that means for resources for domestic investments needed to spur faster economic growth.
“The debt service to revenue ratio of Nigeria is high at 73%. Things will improve as crude oil prices recover. But the situation has revealed the vulnerability of Nigeria’s economy.
“To have an economic resurgence, we need to fix the structure of the economy and address some fundamentals,” Adesina said.
While Nigeria is facing the challenge of revenue concentration mainly on one source, the AfDB President said structural bottlenecks limiting the country’s productivity need to be removed urgently for other sectors to generate revenue.
“Nigeria’s challenge is revenue concentration, as the oil sector accounts for 75.4% of export revenue and 50% of all government total revenue. Something must be done urgently.,” he said.