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 said.
Mr Sanusi lamented the situation last Thursday 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.
He said: “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 facts that exports are yet to be diversified at the book of our
revenues from oil sectors given what we’ve seen and what have been discussed today about the
prospect of hydrocarbons as we move into a greener world.”
Nigeria’s debt position has been a source of concern for development experts in recent years, especially
in the midst of dwindling oil revenue.
Mr Sanusi, who was recently deposed as Emir of Kano, noted that 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 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 if (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 added that in the countries where debts to GDP numbers are high, tax is a major component of
government revenues.
Interest Rate
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 Mr 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.
“And these are the kinds of things that we need to lift people out of poverty and bring sustainable
growth,” he argued.
Population
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 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.”
Mr Sanusi argued further that a very smart way of dealing with debt relief is to effectively ensure that
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.