. As debt stock nears N47trn
Clara Nwachukwu
With Nigeria’s debt liabilities soon to reach almost N47 trillion, when added to the fresh $6.5 billion the country wants to borrow through Eurobond, it may not afford to deploy its share of the historic $650 billion-worth SDRs from the International Monetary Fund (IMF) into the fight against the COVID-19 pandemic as advised.
Although President Muhammadu Buhari on Friday, in his address at the 76th session of the United Nations General Assembly (UNGA), New York, USA had called for equitable distribution of COVID-19 vaccines across the world to enhance the success in the fight against the deadly, he did not suggest that Nigeria’s SDRs would be deployed for this purchase.
Nigeria got about $3.35 billion from the Special Drawing Rights (SDRs), but is yet to say what it plans to do with it aside from boosting its foreign reserves, which got a 10% lift.
Economic experts, who spoke with Sustainable Economy, on what the country should do with the drawing rights insist that Nigeria’s debt burden far outweighs the pandemic challenges.
Indeed, the President had noted that developing countries use most of their revenues for repaying debts, and appealed to ”rich nations” and international financial institutions for outright debt cancellation for countries ”facing the most severe challenges in the wake of the COVID-19.”
The Multilateral Leaders Task Force on COVID-19, which include the International Monetary Fund (IMF), World Bank Group (WHO), World Health Organisation (WHO), and World Trade Organisation (WTO), had also expressed concerns over the low access to vaccines especially in low- and lower middle-income countries and in Africa.
But experts believe that apart from the politics around the COVID vaccines distribution, the amount that is available to Nigeria even if it is converted to cash is too small to make an impact amid the plethora of issues facing the country.
Admitting that the main driver of the SDRs is the COVID-19 pandemic to enable countries to buy drugs and vaccines, renowned Economist, Prof. Ken Ife, argued that the debt burden tops the priority list of the government especially as the drawing rights are a mechanism for countries that are in financial difficulties to have access to soft money.
He said: “Nigeria is about to borrow $6.5billion through Eurobond and this is meant to augment the budget only for this year, and on the back of this, the Federal government has overdraft of N10 trillion/$25 million from the Central Bank. This has not been added to the debt, which they want to convert to a long term 30-year bond with two years warranty. When you add this, the current total debt of N33 trillion will rise to N43/47 trillion.”
Prioritising debt
Since the advent of the Buhari’s administration in 2015, debt has become a growing concern, with debt servicing alone gulping over 80% of the government’s revenue. For instance, a Central Bank of Nigeria (CBN) data revealed that while the government earned about N3.99 trillion in 2020, a whopping N3.26 trillion went into debt servicing alone.
Despite the government’s assurances on debt sustainability, the high level of interest payment raises further questions on the country’s ability to repay, especially as the debt-service-to-revenue is expected to rise even further under the current financial year and beyond.
For this reason, the Head of Department of Economics, Prof. Adeola Adenikiju, advised the government to urgently address the revenue challenges. “If you look at the over N13 trillion budget, we are going to borrow over N5 trillion, almost 40%, which means that we have a significant revenue challenge. No amount of SDRs from the IMF can solve that because what we have is a short term bridge, and we need to look inward and find ways to stimulate our economy to be able to generate growth and generate revenue for the government.”
Again, he argued that expanding the government’s income stream is underpinned by the need to tackle Nigeria’s security crisis once and for all. “Security is at the heart of everything and it is affecting both foreign direct investment and local investment. If economic activities are slowed down we won’t be able to generate enough revenue, so we need to find a way to create sufficient economic activities that will generate revenue to enable the government to perform its transformational role in the economy.”
Similarly, a former President, Chartered Institute of Bankers of Nigeria (CIBN), Prof. Joseph Ajibola, agreed with his counterpart Adenikiju that with deficit budgeting close to N5 trillion for this year, and another N5.5 trillion next year, “added to the very high debt service ratio, the debt burden is already very high about 80+% of the revenue, so there are huge gaps.”
Against this backdrop, Ajibola, also a lecturer of Economics at the Babcock University, said the SDRs can help in closing these gaps rather than being spent on COVID vaccines. “Like I said, we are already heavily exposed and the SDRs wouldn’t make that much impact. Also, it depends on our financial template and the framework we want to operate. If I were to advise, such monies should be drawn to reduce deficit budgeting and clear some external obligations so that we can have a breathing space for the domestic economy, instead of keeping all the debt burden hanging,” he added.
No amount of SDRs from the IMF can solve that because what we have is a short term bridge, and we need to look inward and find ways to stimulate our economy to be able to generate growth and generate revenue for the government.
Controlling COVID
Given that the COVID-19 pandemic is seen not to be as serious in Nigeria as in other parts of the world, with economic activities now in full steam, Adenikiju believes there are other more debilitating issues than vaccine purchase. “The security challenge today is more of a problem than the COVID, and this is not underestimating COVID, but if you look at the recorded cases in the country compared to the developed countries, they’re not that significant.”
For Ife, the politics and hoarding of vaccines by the developed countries weaken the seriousness the international organisations attach to the control and spread of the pandemic.
He noted that “The rich countries promised the developing countries that 20% of the populations will be vaccinated and they will provide free vaccines. For Nigeria that means 40 million X 2 dozes/80 million and we haven’t seen those yet; we only got 4 million doses and people are dying. To reach the immunity target, you need 60% of the population to be vaccinated, which is 120 million, so we have a long way to go.
“The issue is, the countries are hoarding their vaccines and they have gone ahead to produce a booster after the two doses to ensure they are consuming their vaccines. If the developing countries have money, they will buy their own. Also, the rich countries are cutting down on their development aids and that is why the IMF made the SDRs available so they could use it to buy their own vaccines.”
Besides, he argued that Nigeria can get more value if it decides to do collateral SDR. “For instance, if Nigeria wants to buy vaccines from China, it can say to China: ‘We need $6billion worth of vaccines; can you use some of your SDRs to pay for that?’ China will accept and say: ‘As long as you’re going to buy the vaccines from China, we can allocate some of our SDRs to you.’ This is bilateral, and you will get twice more money than you would have by allocation,” he explained.
