Nigeria’s current frightening and explosive borrowing is raising concern among non state actors who have mobilized resources to engage other stakeholders to action initiatives that will help neutralize imminent fiscal crises.

Taking up the challenge the Civil Society Legislative Advocacy Centre (CISLAC), a non-profit, advocacy, information sharing, research body and her partners have launched a research product that centers on revealing and challenging the

role of private creditors in hindering people’s recoveries to enhance the urgency with

which the international community must address sovereign debt crises.

The research was commissioned with support from Christian Aid, to fully highlight the Nigerian context and dimensions of the indebtedness to private creditors for policy options and deliberate efforts to ending it.

It aims to contribute to an international financial architecture and macroeconomic environment that enables the fulfilment of human rights and the undertaking of climate action in economies that center on care.

Speaking in Lagos while interacting with the media, Auwal Ibrahim Musa (Rafsanjani), Executive Director, of CISLAC, believed that the timing is auspicious to intensifying the urgency for adequate responses by relevant actors within the debt financing ecosystem that will contribute to cushioning this worsening economic crisis.

Musa, observed that Nigeria appears to be heading towards a debt crisis, with inevitable human costs.

“With limited access to further financing on concessional terms, and with a growing presence and influence of private creditors in its debt profile, Nigeria’s national debt is growing and increasingly putting the country in a precarious situation, with significant implications for human rights, including to education, health and climate change mitigation and adaptation. A growing proportion of external debt owed to private creditors under opaque terms and often subject to high interest rates is contributing to spiraling debt servicing costs, increasing the risks to Nigeria’s economy.” he said.

Musa, also noted that this trend is playing out in a context of lack of transparency in lending more generally- which is a barrier to holding governments accountable for debts they incur- alongside the deep economic impacts of the COVID-19 pandemic and the associated fiscal constraints.

His concern also stems from the fact that past decade has seen the largest, fastest and most broad-based increase in debt in emerging and developing countries over the past 50 years.

The total debt in these areas he said has risen by 54 per cent percentage points of Gross Domestic Product (GDP) to a historic peak of almost 170 per cent of GDP in 2018.

A major contributor to this increased public debt levels has been the unprecedented influx of private lenders flooding developing economies, as they look for higher returns outside advanced economies following the global financial crisis of 2008.

The concern is that this new frontier of lending (private creditors) operates to increase the cost of debt servicing while restricting governments’ fiscal strength and constraining their ability to respond adequately to social and economic emergencies including those brought to the fore by the outbreak of the COVID-19 pandemic.

Citing data from the Debt Management Office (DMO), Musa said Nigeria’s Total Public Debt Stock as of June 30, 2022, was N42.84trillion ($103.31billion). It is instructive to recall that Nigeria’s debt service cost presently outweighs its revenue with clear signs of economic dangers ahead.

There are implications for this rising debt stock in Nigeria with total external debts amounting to about $40billion and a private credit composition of $15.9billion which represents 39.8 per of total external debt stock, he said with Eurobonds taking the bulk of the commercial loans with a total portfolio of $15.62billion.

“With the refusal of private creditors to embrace debt relief initiatives, the Nigerian

government will continue to spend a significant part of its budget to service loans to

private creditors under very stringent conditions, including high interest rates. This has drastically reduced due commitment to more critical socio-economic sectors like

Health, Education. Further to this, the Federal Government projected debt servicing to cost N10.43tn by 2025, according to the 2023-2025 MTEF/FSP document.

“Since we can no longer access concessional loans, we diversified to borrowing from

private creditors at ridiculous interest rates. The real cost of our debt mismanagement is the public services that we fail to get, the facilities and infrastructure that we lose and the subsequent impact on women and children especially.

“This is a burden for many. While provisions in the Fiscal Responsibility Act (FRA) sets out fiscal discipline to checkmate the activities of our leaders, they always have a way around it, one of which is Shifting the Debt threshold from 20% to 40%. This raises several questions. Is this the best we can do at the moment? Is the Debt management office responsible for setting the debt threshold? Whose responsibility is it to do this? Should the debt limit be based on our Gross Domestic Product (GDP) or on internally generated revenue (IGR)? What are these debts used for in the first instance?

“Again, the Fiscal Responsibility Commission (FRC) has the responsibility of setting debt limits rather than the DMO since they are the actual borrowers and have the responsibility of ensuring that interest rates for concessional loans should not exceed the statutory 3 per cent.

Debt limits should be set on Revenues rather than using a vague concept. Most states are in debts, and it has become vital for states to first obtain a clean bill of health from the Securities Exchange Commission (SEC) and the FRC before applying for loans.” he said.

Continuing, he said, about 90% of government revenue is devoted to debt servicing at the expense of development projects. The outbreak of the Covid-19 pandemic in 2020 exposed the massive gap in government finance for social services and the near non-existence of social intervention programs to cushion the effect of the pandemic on poor citizens.

“This kind of situation led to the call for debt service suspension by the G20 to allow

governments access funds to address some of the effects of the covid-19 pandemic

However, to the extent to which sovereigns depend on private loans to meet their

budget needs, debt suspension is inadequate to address impending debt crises that

developing countries are facing.”

He called for a strong strategy as a country to stem the tide as borrowed funds should be focused on self-liquidating projects; projects that can pay back the loans, especially as debt servicing is a first-line charge and therefore these agencies/private creditors give these loans with higher fiscal conditionalities.