Experts Profer Solutions

Story by Yusuf Danjuma Yunusa

Africa’s largest economy, Nigeria, has, since return to democracy in 1999 struggled with debt servicing. The government of former President Olusegun Aremu Obasanjo inherited a significant debt profile from the military regime. Between the 1980s and 1990s, the military regime, excluding internal debt, had accumulated external debt of over $28 billion.

The administration of former President Obasanjo was committed to tackling the debt to the barest minimum. In the spirit of that commitment, the administration entered into a debt relief agreement with the informal group of creditor nations – otherwise known as the Paris Club. This move yielded a significant result by reducing the country’s debt to $10 billion at that time.

The administration was intentional about the necessary measures employed purposely for reducing the country’s debt profile. This milestone was greatly acknowledged as the administration’s strength.

NIGERIAN TRACKER investigations understands that the manageable state of the country’s debt profile remained intact even during Yar’adua’s administration. However, under the Goodluck Jonathan-led administration, budget deficit financing and the need to tackle infrastructural deficits – mainly in the power sector – continued to plunge the country back into debts.

The 2014 oil price volatility, coupled with unnecessary recurrent government expenditures and the funding of the military to combat insurgencies at that time, also contributed to the rising debt profile of the country because all those expenditures were made through borrowing. And for the borrowed funds to be serviced, another form of expenditure was also needed. So, you see that the cycle keeps going like that. By the end of 2014 – in the last quarter – Nigeria had recorded a total public debt (both domestic and external) of ₦49.34 trillion, as reported by the Nigerian Bureau of Statistics.

By 2015, Nigeria’s external debt had increased to about $10 billion, while the composition of both domestic and external debt had risen to over $60 billion.

Under the administration of President Muhammadu Buhari, the country’s debt profile increased even more due to the continued fuel subsidy. The country recorded heavy borrowing during the administration because of the ongoing fuel subsidy. No returns were made, corruption continued to make its headway in the sector while the debt continue to skyrocket.

Also, the fight against insurgency, which was left untamed by the Jonathan-led administration, was inherited by the Buhari administration. Heavy funding of the military to decisively tackle terrorism was needed, hence another reason to borrow.

In the storm of all that, the 2016 recession hit the country. The economy suffers a serious setback. However, with the right measures employed by the government – such as the diversification of the economy to the non-oil sector, particularly agriculture – the economy bounced back significantly by 2017. This was the same year in which the Paris Club refund was mismanaged by state governors.

A total amount of ₦243.7 billion was shared among state governors in 2017, mainly for the payment of outstanding salaries. Most of the the funds was diverted and mismanaged. This act of criminality by some of those state governors depicted the dilapidated nature of the country’s economy. Because, for states to be unable to settle the burden of salary payments, and the federal government, in an attempt to address that, ended up having the funds looted for personal gain by the state governors without repercussions, explains the mess we’re in as a country.

In that same year, 2017, a total amount of ₦474.06 billion was recorded to have been utilized for the country’s domestic debt servicing alone. As we all know, debt servicing is also an expenditure. And for a government that solely relies on a single source of revenue generation, borrowing would inevitably continue. And as borrowing keeps progressing without a corresponding measure to address its servicing comfortably, a rising debt profile would also be inevitable.

In spite of all the monetary interventions received from the Obasanjo administration down to Buhari’s, the country’s debt, according to the National Bureau of Statistics, stood at ₦87.38 trillion at the end of the second quarter of 2023.

Moreover, on the eve President Tinubu’s swearing-in as the President of the Federal Republic of Nigeria, he declared that the subsidy had gone. Those who knew what that meant were excited, noting that the usual squandering on fuel subsidization from borrowed funds had stopped. Little did they know that the status quo would be maintained, if not worsened.

Recurrent government expenditures, bordering on unwarranted expenditures by the presidency, skyrocketed. The funds that were previously directed at settling the burden of fuel subsidy should have been utilized in drastically servicing the country’s debt, since he had scrapped the subsidization of fuel.

Not that there hasn’t been debt servicing – there has. But past governments also engaged in debt servicing despite their allocation of funds for fuel subsidy. So, much is expected of this very government in that regard since it decided to take an exception in the fuel subsidy saga.

According to data published by the Debt Management Office, as of June 2023, Nigeria’s external debt stood at ₦29.8 trillion. But during the last quarter of 2024, the country’s external debt had increased to ₦62.917 trillion. Within 18 months of Tinubu’s administration, a total increase of ₦33.1 trillion had been recorded for external debt alone.

On the other hand, domestic debt was at ₦48.3 trillion in June 2023. By December 2024, the debt increased to ₦70.4 trillion – a difference of ₦22.1 trillion. This brought the country’s debt to a total of ₦142 trillion by the end of 2024.

Experts have hinted that by the end of the first quarter of 2025, the country’s debt may increase to ₦150 trillion. All of this is happening despite the President promising to tackle the rising debt profile when he inaugurated the Presidential Tax Committee in August 2023.

In a quest to obtain an expert’s view on the subject matter, a lecturer and Public Sector Economist, who is an associate professor in the Economics Department of Ahmadu Bello University, Zaria, Kaduna State, shared the following:

“Nigeria’s rising debt profile is something that’s inevitable because the outputs that are usually proposed to be achieved are far from the country’s potential. Hence, the government would have to borrow in order to meet up with the said outputs.

And the saner question to be asked, if the country’s rising debt profile is inevitable as opined above, is: Shouldn’t the government then resort to borrowing responsibly?

Then we would find out that what’s responsible to the government, in the sense of borrowing, is different from what it is to ordinary Nigerians. An ordinary Nigerian always sees borrowing responsibly to be when one borrows and invests for income to be generated. But our leaders, who are serving as the government, don’t see it the same way. What is responsible to our leaders in the context of borrowing is to make sure every possible borrowing is made in order to satisfy the aggrieved Nigerians because they are so hungry for power.

None of them would want to forgo a second tenure after the first. And in order to achieve that, the demands of the citizens must be met at all costs. This is where borrowing comes in.

Another reason for its inevitability is the issue of our exchange rate. Most of these borrowings, when undertaken and when it’s time to pay them back, are not always at a time when the exchange rate remains constant. Take, for instance, the ongoing fracas between the owner of Arise Television, Nduka Obaigbena, and First Bank of Nigeria. The former borrowed money from the latter when the dollar-to-naira rate was at ₦400 to $1.

And now, when it is time to pay back, the rate has risen drastically. The investment for which the borrowing was used was in naira. In this case, which is just between ordinary Nigerians in business, servicing the debt is now a major concern to the borrower because of the prevailing rate between the currencies. What then should we think about our government?

We all know that servicing debt is another form of expenditure. The higher the debt servicing, the lower the expenses in areas such as salary payments, military funding, infrastructural development, and healthcare financing – which are very crucial in any country’s economy. So, the truth is that the rising debt profile of Nigeria, with this style of leadership, is definitely inevitable.

In light of the above, it’s obvious that the implications of such a vicious circle of the country’s debt profile on its economy will be grave.

NIGERIAN TRACKER investigations revealed that if Nigeria continues to operate in this manner, surely, a time will come when even basic government expenditures such as salary payments will be difficult to attend to because there will no longer be sufficient revenue to cater for such expenses. This, in particular, has already started to manifest, considering the huge amount of money allocated solely for debt servicing in the 2025 budget.

According to the budget, about 45% of the total is strictly directed toward settling debts. A time will come when debt servicing will gulp up to 60% if this continues.

Another ugly implication of this rising debt profile is that the country may, in the future, find itself under the dictates of any country willing to grant funds for debt settlement,” he said.

Confirming what this lecturer said, especially the last paragraph, we all remember the social media when a National Daily (Not Nigerian Tracker)reported the hidden agenda behind the SAMOA agreement that Nigeria entered with concerned nations in 2024.

Since it’s clear that the country’s rising debt profile is inevitable and its implications are grave, it’s pertinent to note that it can be tamed if the government is ready to eliminate unnecessary recurrent government expenditures, diversify the economy absolutely from oil dependency, and implement a fair, realizable, and consistent taxation system.

In the effort to further inquire about the implications of the rising debt profile on Nigeria’s economy, AbdulWahab Lukman, a final-year student from the Economics Department of Ahmadu Bello University, Zaria, told NIGERIAN TRACKER correspondent that

“The implication of the country’s rising debt profile is simply the fact that we will not be able to escape a serious rise in inflation. Because, as the government borrows money and spends it, if there’s no corresponding GDP to mitigate it, definitely there will be inflation. And, gradually, if we’re to be honest with each other, this is already manifesting.

He said Another implication is low revenue. Definitely, as we borrow, we must pay back. And the repayment is always huge compared to what was borrowed. With Nigeria operating on only one source of revenue – oil – how do we tackle this without falling short of revenue that should be directed at financing other productive sectors of the economy that could drive others along?” he asked rhetorically.

It was observed that if Nigeria leaders are ready to make a change regarding reducing borrowing and diminishing the country’s debt profile, unnecessary recurrent government expenditures must be tackled. The economy must be diversified absolutely in order to drive more revenue. Investment in productive sectors that could drive others along must be made to create jobs and boost the economy further. And lastly, a fair, realizable, and consistent taxation system must be implemented.