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Nigeria’s Debt Crises: How we got here



Nigeria’s Debt Crises: How we got here

Nigeria debt crisis


Finacial News

Nigeria’s Debt Crises: How we got here

A lot has been written about Nigeria’s soaring debt levels and what it portends for the future of our country. You may have been pondering how we got here and what it means for you personally. Well, consider no more, we are here to make sense of it all for you.

A Historical Perspective

Back in 1999 when President Obasanjo took office, Nigeria’s total external debt stood at $28bn whilst her domestic debt was just shy of N800bn. External debt is the money we borrow from international organizations and foreign countries while internal debt is money borrowed within Nigeria. By the end of his administration, President Obasanjo had paid down the external debt to $2.1bn following the debt forgiveness agreement with the Paris Club, a group of major creditor countries. Internal debt rose to N1.75tn in the same period.

After the Paris Club agreement, the Nigerian senate enacted the Fiscal Responsibility Act which sought to introduce prudence and sustainability in our debt management. In simple terms, we could only borrow for capital expenditure and human development at concessionary rates and only for projects that could pay back the loan through increased revenue inflow from taxation or other revenue sources. Thus, this would act as a check on any future government borrowing.

During the Yaradua / Jonathan governments, our national debt started to creep back up, and by 2015, total external debt stood at $7bn whilst internal debt had risen to N8.8tn.

However, under the current government, we have witnessed a major change in our approach to debt management. As of the end of March 2022, figures released by the Debt Management Office showed that the total debt stock stood at N41.6tn or $100 billion. Of this total, external debt made up a whopping $48.45bn, a seven-fold increase in just 7 years. In addition to this, the Federal government has been financing its budget deficit through ways and means and has borrowed a further N19tn from the country’s central bank. When added together, total debt stock stands at around N60.6tn. In dollar terms, this is approximately $143bn.

All of this debt has to be serviced and today, Nigeria spends about 97% of federal revenue on service debt. This is very problematic. At this rate, the country may need to borrow to service its debt in the near future. Not only has the government abandoned the rules under the fiscal responsibility act, but it also jettisoned the central bank rule that says it can only borrow 5% of the actual revenue from the preceding year in any given year and must be paid back within the current financial year.

It should also be borne in mind that many of the recent loans have interest moratoriums, therefore the full impact of debt servicing will only be felt once we start servicing these debts.

This does not bode well for Nigeria’s ability to fund future expenditures, so unless the government starts looking at ways to improve revenue and plug leakages from corruption, Nigeria could be heading towards bankruptcy.

Why you should be concerned

The level of a nation’s debt can influence its exchange rate. If the national debt is too high, it can limit the value of its currency. We are already witnessing increased volatility in the currency markets as the naira comes under increased pressure from a multitude of factors and unless we embark upon a corrective course of action immediately, we should expect further volatility in the future. In times like this, having a trustworthy partner is the key to navigating these uncertainties. Luckily for you, we have just what you need to do that PariVest can help you protect your wealth from currency devaluation and local inflation. Get started now from as little as N10,000 and start earning in pounds now.

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