Former governor of the Central Bank of Nigeria (CBN), Prof. Charles Soludo has said Nigerian public finance is broken and the country on a debt cliff.
Prof. Soludo added that Nigeria’s rising debt ratio is simply an indication of the broken nature of its distorted public finance, which he said needs to be fixed fundamentally. As a fact, he said the debt issue is just one of the signposts of the broken finance structure.
“It’s not just the debt thing. I think our public finance is broken. Period! The public finance is broken and needs fundamentally to be fixed. And I think the debt issue is simply a symptom of that. Part of the manifestation of the public finance chaos or the broken nature of our public finance is the debt thing,” the Professor of economics said when responding to a question by our correspondent on the sidelines of the 47th convocation ceremony of the University of Nigeria, Nsukka, Enugu state.
Latest data released by the Debt Management Office (DMO) showed that Nigeria’s debt hit N20 trillion as of September 30, 2017. Foreign component accounted for 23.04 per cent or N4.694 trillion ($15.40 billion) of the total debt stock. The figure was released before the Senate arm of the National Assembly approved the borrowing request by the executive to raise another $3 billion from the international capital market (ICM). The $3 billion which was oversubscribed has been released already, according to a reliable source in the ministry of finance.
The minister of finance, Mrs. Kemi Adeosun believes that the current debt management structure of the economy is good enough and working. Her justification is that Nigeria is establishing a strong position in international capital market, with regular bond issuances.
But Prof. Soludo says it’s a wrong notion. “I mean, look at the revenue mix. The revenue mix is too meniscal – the base is too tiny to start with. And you think the way to solve it is to borrow your way out? You will compound it and after a while again you will do nothing else but service debt. So, the debt is only but part of it,” he said.
More about 100 or more than 100 per cent of Nigeria’s capital budget is borrowed. Noting that Nigeria has a debt servicing ratio relative to GDP recurrent revenue, Soludo sighed and said: “You are on a debt cliff.”
“And if something doesn’t happen to the base – if you have a hundred and something trillion naira economy in nominal terms and you are only collecting 4, 5, 6 trillion in revenue, we are not anywhere near…
“Look at the recurrent expenditure. The size of the public sector, relative to the recurrent revenue of government as it were. I don’t think anybody has the courage to confront the recurrent as it were,” he added.
He however said the problem didn’t start today by the way. The former CBN Governor had wrote shortly before the 2015 presidential election that a situation where Nigeria was borrowing for even recurrent at the peak of oil boom in Nigeria between 2011 and 2014 when oil price was around $120 and “we were borrowing for recurrent”, is wrong.
“So, the point is a structural problem. And the question is who is going to bear the cat? And bearing the cat will require quite a lot of courage to confront A: the size and growth of the recurrent, you also tackle the base in terms of revenue base, and then you deal with the issue of the composition of spending, itself. It’s quite a heavy job to do,” he stated.