Imagine this: Your sibling makes #100 per month (Yes, it’s terrible pay but please keep following because we are heading somewhere) but in order to finance his lifestyle which includes partying, rent, buying the latest toys, he borrows up to #9,900 to make it up to #10,000. His lenders are very generous with him maybe because he’s charming, maybe because he used your father’s house as mortgage – we don’t know. The point is, he’s living large on borrowed money and has been doing so for the past decade. Does this younger sibling sound like someone you know? Yes, it’s Nigeria and the situation is more worrisome than you think. 

Despite being a top producer of oil in a world economy where oil is black gold, Nigeria has been running a budget deficit for more than a decade. Just to get readers familiar with this economic term, a budget deficit is when what you plan to spend is more than what you earn. To quote Momodu and Monogbe (2017), “Defict as a means of financing was introduced in Nigeria after the civil wars, oil crisis and current financial and economic issues. Since independence, over 85% of Nigerian budgets are on deficit.” Now the question is, if Nigeria has been spending more than what it earns, where does the money come from? Well, like the profligate younger brother mentioned earlier, Nigeria has been financing itself through heavy borrowing.

Ever since Nigeria returned to civil rule in 1999, its budget has been largely financed by borrowings and as at 2021, the total figure for Nigeria’s public debt including external and internal borrowings and consisting of debts owed by federal, states and the FCT, now stands at $87.24 billion (The Cable, 2021). Recall that in 2005, the Obasanjo administration secured a public debt relief from the Paris Club to a tune of $18 billion and an overall reduction of the country’s debt stock by $30 billion, leaving a total amount of $2.11 billion dollars in external debt as opposed to the $28.04 billion it started with in 1999. However since the Y’ardua administration, the country’s debt has steadily climbed till it reached where it is now. So far, the Buhari administration has been the worst borrower, increasing public debt by more than 173 percent (The Cable, 2021).

On the part of the administration, they claim that they are well within financial reason to borrow since Nigeria’s GDP to debt ratio is reasonable and even lower than its neighbouring countries. In simple terms, this implies that the total value of goods produced in the country is worth more than its debt. When GDP is higher than debt ratio, a government can choose to run a deficit buget as long as the economy is growing. This should be good news (in fact this is what encourages past and current administrations to keep on borrowing) but in reality, it is not so and here is why. For a country to be said to make any sort of economic progress, it has to first show in its revenues, and so it does not matter if its GDP is sky high if it does not translate to any real revenue for the country. According to Statista (2022), Nigeria’s internally generated revenue as at 2021 stood at #398 billion meanwhile it spent #4.22 trillion on debt servicing that same year (Nairametrics, 2022). Simply put, for every #100 earned by the country, the federal government spends #98 on debt servicing.

Furthermore, and to make matters worse, the rest of the revenue has 70% of it going towards recurrent expenditure while the rest (which is close to nothing, by the way) goes to capital expenditure. Now recurrent expenditure are overhead costs incurred in running the country such as salaries, pension, statutory transfers to the National Assembly and other government agencies, and so on. So by implication, the little money Nigeria truly earns is spent on expenses that do not add anything to the country. And this is not to talk about the true reality of the looting that happens with the said borrowed funds.

In summary, Nigeria’s public debt is nothing short of detrimental to the country’s macro-economic stability now and in the future. But what can be done to end the decline of the economy? While I do not claim to be an expert in Economics, there are a few no-brainer measures that can be employed. First of all, the borrowings should be reduced to a minimum. So far, the current administration has only succeeded in putting the country into more debt. Other strategies that can be employed is by following the rules in the Fiscal Responsibility Act, rules that the Muhamadu Buhari administration blatantly ignored and brazenly broke.

In order to turn our country’s economy around, subsequent administrations must learn from the mistakes of past administrations that it is good to cut one’s coat according to one’s cloth.