N80.7trn Debt, Subsidy Drain May Wobble Tinubu’s Presidency

As Bola Ahmed Tinubu takes over today as the new President of the Federal Republic of Nige­ria, many Nigerians are full of expectations that he possesses the magic wand to take them on a ride to a better life and better country.

However, a cross-section of stakeholders believes that im­pediments on the way, like a total public debt of N46.25 trillion, the oil subsidy burden, infrastruc­ture deficit, insecurity and a host of others may prevent any meaningful changes in the life of the administration.

The government also owes the Central Bank of Nigeria (CBN) N23.7 trillion through the Ways and Means advances, while there are plans to borrow an additional N11 trillion. This has doubled the total debt to N80.7 trillion or about 40 percent of the GDP.

The obligations will add to an increasing debt-service burden that consumed 80 percent of the nation’s revenue last year. The International Monetary Fund (IMF) had projected that debt service may consume all of the government’s collections.

Analysts, who spoke to Dai­ly Independent at the weekend, said the enthusiasm of the new government may be met by arti­ficial burdens that were created by the President Muhammadu Buhari’s regime due to a lack of knowledge about the economy and the inability of the govern­ment to invite Nigerians who have the credentials to handle the economy.

The Debt Management Of­fice (DMO) in a recent statement revealed that Nigeria’s total public debt stock rose to N46.25 trillion or $103.11 billion as of the fourth quarter of 2022.

It stated that the new figure consists of the domestic and external total debt stocks of the Federal Government and the sub-national governments (36 state governments and the Fed­eral Capital Territory (FCT)).

According to DMO, the com­parative figure of public debt as of December 31, 2021, was N39.56 trillion or $95.77 billion.

This means that the coun­try’s debt increased by N6.69 trillion or $7.34 billion within one year.

Stating reasons for the increase, the DMO said new borrowings by the Federal Government and sub-nation­al governments, primarily to fund budget deficits and exe­cute projects and the issuance of promissory notes to settle some liabilities also contributed to the growth in the debt stock.

“As of December 31, 2022, the total public debt stock was N46.25 trillion or 103.11 billion.

“In terms of composition, the total domestic debt stock was N27.55 trillion ($61.42 billion) while the total external debt stock was N18.70 trillion ($41.69 billion).

“Amongst the reasons for the increase in the total public debt stock were new borrowings by the FGN and sub-national gov­ernments, primarily to fund budget deficits and execute projects.

“The issuance of promis­sory notes by the FGN to settle some liabilities also contributed to the growth in the debt stock.

“On-going efforts by the gov­ernment to increase revenues from oil and non-oil sources through initiatives such as the Finance Acts and the Strategic Revenue Mobilisation initiative are expected to support debt sus­tainability,” DMO had said.

The statement showed that the total public debt to Gross Domestic Product (GDP) ratio for December 31, 2022, was 23.20 percent which indicates a slight increase from the figure for De­cember 31, 2022, at 22.47 percent.

“The ratio of 23.20 percent is within the 40 percent limit self-imposed by Nigeria, the 55 percent limit recommended by the World Bank/International Monetary Fund, and the 70 per­cent limit recommended by the Economic Community of West African States,” it stated.

Analysts believe that Nigeria is currently at risk of reaching its self-imposed debt limit of 40 percent of gross domestic prod­uct by the end of the year as it increases borrowings to plug a revenue shortfall.

“Looking at debt-to-revenue ratios tells us that Nigeria does carry default risk,” Charlie Rob­ertson, the global chief econo­mist at Renaissance Capital in London, wrote in a note recently.

President Buhari, who leaves office today after serving two terms of four years, earlier this year, requested approval from lawmakers to add the CBN overdrafts to the country’s debt stock. This request was eventu­ally approved by the lawmakers.

The nation has been largely locked out of the international debt markets after yields on its dollar notes rose to distressed levels, with its 2051 Eurobond yielding 13 percent.

The worsening debt situa­tion is causing alarm at home and among the global investor community, especially given Nigeria’s poor debt service to revenue ratio.

One major impediment that may hinder the expected performance of the Tinubu-led administration is the impend­ing removal of petrol subsidy as Daily Independent reveals that the Federal Government spends about N40.1 billion daily subsidising every litre of petrol consumed in Nigeria by at least N600. It means the government spends about N1.24 trillion on fuel subsidies monthly.

The country is in massive debt and would need more money to subsidise fuel. As of March 31, 2022, Nigeria’s total public debt stock stood at N41.60 trillion ($100.07 billion).

As a remedy, Comrade Jo­seph Akinbo said the country needs to consider getting inves­tors into the petroleum sector to boost the country’s economy.

Since 2000, the Nigerian government has issued at least 20 refinery licences to private companies. However, not one refinery has been built. Inves­tors could not recoup their in­vestments due to the artificially low price structure caused by fuel subsidies.

He Akinbo, “To enable a conducive environment for in­vestors, the deregulation of the oil sector is critical. That way, the Federal Government will no longer remain the leading pe­troleum product supplier. This approach will allow investors to take over the role of supplying petroleum products.

“Furthermore, subsidising fuel usually increases fuel di­version to neighbouring coun­tries and smuggling by corrupt government officials”.

Adewale Adamolekun, lead consultant with Pebble Konsult, a firm of economic analysts, said the decision on fuel subsidy removal is a tough one for a new government to make.

“This is certainly not the best decision to take for a new government. The incoming government Bola Ahmed Tinu­bu would have preferred that President Buhari removed the subsidy before now.

“This is not the best time for a new government to come to power. I will suggest that we wait and see what the new government has in stock for us. The expectations are very high”, Adamolekun said.