Debt has evolved as an instrument of power for a capitalist creditor and an entanglement for the debtor in an uncertain economic climate; to borrow isn’t sin but utility-maximizing of loans is pivotal to the preservation of a country’s sovereignty.
The monster global debt stock of $305 trillion in the first quarter of 2023, according to data from the Institute of International Finance, IIF, put indebted developing and low-income countries especially in Africa on edge amid declining capital formation.
Scarcity of concessional loans has increased the vulnerabilities of developing countries to unsustainable borrowing with increasing calls by African leaders for international debt relief initiatives such as Nigeria’s proposed debt-for-climate swap deal with the creditors who are the major contributors of global greenhouse gas emissions.
In Nigeria, for example, the combination of high debt levels of over N49 trillion as at June, 2023 according to data from the Debt Management Office, and rising interest rates has pushed up debt service costs, wiping out the total revenue collected. This also created the present stuffy fiscal space with ambiguous exchange rate, multiple taxation, widening budget deficit, rising inflation and incessant industrial action by labour, demanding pay rise.
The present situation prompts concerns for a rethink and stimulates public conversation on a sustainable debt in Nigeria. Consequently, the conference on “Debt, Development and Climate Challenges in Nigeria: Realities and Solutions,” held recently in Abuja by Heinrich Boll Stiftung, HBS, was timely.
Speaking to DAILY COMMERCE on the sideline of the conference, Jochen Luckscheiter, Country Director of HBS, said the conference aimed at raising awareness on debt, development and climate challenges in Nigeria.
The conference, Jochen said, brought together Nigeria’s civil society organisations — from the length and breadth of the country — in Abuja, Federal Capital Territory, to discuss and share ideas towards finding solutions to the triplet issues hindering growth of the economy.
“We look at Nigeria as a country with very high debt levels; most of the Federal revenue goes to debt servicing. That means there’s very little left to, for example, tackle social development or meet the commitments the country has made in terms of climate change,” Jochen said.
“Nigerians are getting poorer and poorer…”
For Muhammad Sanusi II, a former Governor of the Central Bank of Nigeria and the keynote speaker at the event, “most people have not come to accept that climate change is a reality”.
Explaining further, Sanusi, the revered 14th Emir of Kano, said “We have a decline in agricultural output as a result of the heat. When you think that we are doing 2.2 to 2.5 metric tons per hectare on most crops, when places like China are already doing 14-15 metric tons per hectare, if you have a reduction in that, you have a serious challenge in terms of the ability of the country to feed itself”.
With rising cases of flooding, Sanusi cited data to have predicted that about 14 million Nigerians may be displaced due to inundation of low elevation, adding that, “We could with climate change lose about 2.5% of GDP per year if we do not act”.
“You now have major conflicts between herdsmen and farmers as a result of a conflict over water and other resources. There is energy insecurity as the world turns away from fossil fuels. You have health risks. These are all challenges,” he said.
On the implications of rising debt, the Kano-born economist said, huge debt service, crowding out of private investment, vulnerability to external shocks and reduced fiscal space continue to hinder development in Nigeria.
Nigeria’s total debt stock, he recalled, was N12.6 trillion in 2015 and rose to N46.2 trillion in 2022, indicating a Debt to GDP ratio of 23%.
“Between Q1 2015 and Q4 2023, real GDP growth averaged only 1.37%. This is already below the rate of population growth. So Nigerians are getting poorer and poorer on a per capita income basis,” Sanusi not with dismay.
Nigeria’s budget deficit has been increasing significantly, reaching a record N10.78 trillion in 2023. “How has this been financed? Significantly by new domestic borrowing from the capital market and from the Central Bank and then some external borrowing,” he noted.
He said 81% of Nigeria’s debt financing has come from domestic sources, adding that, ”And we have got a rising cost of borrowing, which you would expect given the weakness in the fiscal balance sheet of the government”.
The Way forward: Sell assets, stop borrowing
“I’m sure, we are aware that we have to sell some national assets to reduce debt because that’s the only way you can create the fiscal space to do the kinds of things you want to do,” Sanusi proffers to the new President Bola Ahmed Tinubu, a 71-year-old man struggling to constitute his Executive Council nearly two months since swearing-in.
Though petroleum subsidy removal by President Tinubu at the onset of his administration has caused citizens more pains with rising cost of living and workers’ disposable income being eroded by inflation, Sanusi said that, “The removal of subsidies is a big first step, but it’s only a first step”.
When asked by DAILY COMMERCE on how the government could fund the budget deficit and build infrastructure without taking loans in the face of dwindling revenue, Sanusi responded, “The government should sell between 14 and 15 percent of NNPC shares to reduce debt”.
Financing climate for the benefit of humanity
For Dr. Austine Sadiq Okoh, a researcher at the Centre For Climate Change And Development, Alex Ekwueme Federal University, Ndufe-Alike, Ebonyi State, if the Federal Government committed financial resources to fighting climate change, it will help reduce emission of about 174.01 million metric tons of carbon dioxide equivalent by 2030.
He noted that financing would shift the country’s economic and social development towards climate resilient development as it makes affordable and clean energy available to Micro, Small, and Medium Enterprises.
Dr. Sadiq, who presented a paper titled “The Nexus of Climate Change, Debt, and the Energy Transition in Nigeria,” said climate financing in Nigeria will engender a gradual shift towards a circular economy.
How Government could avoid rising debt
Speaking on behalf of his organisation, Civil Society Legislative Advocacy Centre, CISLAC, which collaborated HBS to organised the conference, Chinedu Bassey, said Federal Government needed to strengthen the Foreign Exchange Policy to reduce the impact of volatility on loan repayment and thereby reduce the public debt burden that arises from local currency devaluation.
He recommended that the government should improve public borrowing transparency and accountability.
He said public disclosure of critical information such as terms and conditions of loans, particularly those of private creditors will help the country stay alert to any hidden danger in exploring such loan frontiers.
Further, Bassey advised the government to, “Improve legislative oversight- Loan approvals should go through proper scrutiny, the lawmakers subject such requests to public hearings and input while placing a moratorium on existing loans and call for debt relief programs and also carry out a comprehensive audit of the past loans.
“Set up a structure or committee to independently review all loan requests with the view to determining their variability, assess its risk and publish an independent opinion on the impact and implications of such loan before it is presented for approval,” he said.
For Mma Amara Ekeruche, Senior Research Fellow at the Center for the Study of the Economies of Africa, effective and efficient debt governance in Nigeria required adherence to the laws on debt ceiling and annual borrowing plans.
Stressing the importance of transparency, Mma said the government should endeavour to make available the external audit report to the public as well as making provisions for sanctions in the legal framework and criminal penalties if rules are not adhered to by the officials.
Effective Debt Management Strategy, she noted, should adequately cover preferred direction for risk exposure and composition of debt as the CBN Act should be adhered to, especially temporary advancements to the Federal Government should not exceed 5%.
In his presentation, the Executive Director, African Forum and Network on Debt and Development (AFRODAD), Jason Rosario Braganza, advocated creditor accountability and transparency as well as a creditor register that is accessible to the public and Africans.
He noted: “There is a need for a ‘New Debt movement’ and new outlook to issues of domestic resource mobilisation and international development finance mechanisms on the African continent. This new direction is further justified by the evolving context of covid-19 pandemic and other unexpected shocks that have exposed the weaknesses of the international financial system and increased the vulnerabilities of developing countries to unsustainable borrowing to cope with current challenges.”
Highlighting the importance of collaboration between the Nigerian government and civil society in multilateral financial architecture, Rev David Ugolor, said CSO could advocate the “Reclassifying Nigeria within the World Bank, which would allow Nigerian multilateral debt to be treated like that of any other low-income countries”.
Ugolor, a veteran in the Nigerian civil society space, added that CSO could “Call for substantive international debt relief initiatives and reforms of the multilateral financial architecture”.
Speaking further on his paper titled “The Multilateral Financial Architecture: Status-Quo and Existing Initiatives,” Ugolor said CSO could also ”Support calls for reforms of the global financial and debt architecture to reduce the costs, time and legal complications for debt restructuring for African countries as well as including Climate, SDGs indicators in Debt Sustainability Analysis.
The CSOs, he noted, could advocate negotiation of a debt buyback with bilateral creditors as well Support for the UN Framework for debt, BI and the V20 Initiatives.
The conference was organised by HBS in collaboration with African Network for Environment and Economic Justice, the Center for the Study of Economies in Africa, the Civil Society Legislative Advocacy Center, Good Governance Team and the Centre for Climate Change Development.