Debt overhang: Is Nigeria the next Greece

Greece, in recent time, has reneged on the repayment of its national debt on many occasions. For instance, in 2017, Greece was embarrassed by her inability to meet debt obligations and was bailed out by the European Central Bank and the International Monetary Fund. The debt crisis has even cost top Greece leaders their political careers.  In most cases, the Greek government spent beyond its means – i.e. sustained deficit spending and corresponding nasty outcomes. Unfortunately, the Nigerian government is neck deep in debt recklessness and faces the Greece-like crisis in the near term if the current trend persists.

With the Nigerian debt, both the Federal Government and states, now exceeding $71bn and N14tn for external and domestic debt respectively, debt service costs alone gulping about 66 per cent of government’s revenue in 2017, lenders and taxpayers are questioning the country’s ability to sustain the payment of interest and principal on the debt. The Federal Ministry of Finance recently raised concern when it revealed that the Federal Government currently spends about N700bn on a monthly basis on wage and debt servicing. This figure is higher than the average monthly FAAC shared between states and the Federal Government over the last 12 months. This also builds on the recent red flag raised by the International Monetary Fund which reiterated that debt servicing costs were becoming stubborn and a heavy burden on Nigerians.

Adding to the potential crisis is the alarming growth rate of government debt over that last few years. For instance, Nigeria’s external debt grew by 41 per cent over the last three years from $10.7tn in 2015 to N15.1tn in 2017. Domestic debt seems to have grown even faster during the three-year period by 52 per cent.  At the current growth rate, it is projected that Nigerian debt stock will keep rising by more than 20 per cent annually in the next decade. Unfortunately, the people do not see good measures to pay back the debt such as infrastructure build-up, institutional reforms or fiscal discipline among the authorities.

Taxpayers and investors are beginning to ask; Is Nigeria the next Greece? The quick, short and emotional answer is NO! But why not?

• First, the Nigerian currency, naira, is not and will not be the global reserve currency. This means that foreign investors remain willing to lend to Nigeria despite the heavy debt load provided we are pumping crude oil and maintaining the current regime of high and attractive interest rate.
• Second, Nigeria’s Debt-to-Gross Domestic Product remains low at 20 per cent which makes it easy to convince the National Assembly and other academic-minded experts that Nigeria is “good to go” for more debt. This is called “shallow thinking” because for a developing country like Nigeria, what matters is the debt service- to-revenue ratio, which currently too is high at 66 per cent.
• Three, unlike other parts of the world where the government can raise taxes to cover government spending surge, tax administration and tax proceeds remain sticky in Nigeria making debt an easier and lazier source of money to state governments and the Federal Government.

Unlike Greece, Nigeria may be standing far from that point where debt crisis will begin to consume the political career of her leaders. However, the youths are increasingly becoming unsettled about rising debt stock and fiscal rascality of the government. Thus, it is our hope that authorities at both the Federal and state levels will find new and more creative ways other than borrowing to fund their budgets especially, the non-capital expenditures.