IMF AND THE QUESTION OF DEBTS

 Government should do well to heed the warning

The recent warning by the International Monetary Fund (IMF) about Nigeria’s mounting public debt is concerning. While projecting that the country’s public external debt could surge from $51.9 billion in 2025 to $72.6 billion by 2027, the IMF has cautioned that 2027 general election spending, food insecurity as well as complex and opaque borrowing structures are heavily straining public finances. Specifically, the IMF has cautioned against a proposed $5 billion Total Return Swap (TRS) with a UAE lender (First Abu Dhabi Bank), stating that such complex derivatives could expose the country to severe margin calls if the naira weakens. We hope the federal government will heed the warning.

While admitting that the reforms undertaken by the current administration have strengthened macroeconomic stability and improved the country’s ability to withstand external shocks, the IMF warns that weak revenue mobilisation, expenditure slippages, contingent liabilities, etc., could worsen the debt outlook if not carefully managed. Meanwhile, the World Bank had similarly expressed a similar concern over the debt service to revenue ratio, saying that reduced earnings might render the country’s debt unsustainable. We are also worried by the frequency of borrowing by the federal and state governments as many analysts continue to sound a note of caution that the country may be heading for another debt trap if restraint is not exercised.

We must recall that in 2005, Nigeria successfully negotiated a complicated debt write-off deal of about $18 billion after a cash payment of approximately $12 billion to free the nation from the Paris Club debts of over $30 billion, most of which were accumulated interests and charges. A chunk of these loans was secured in the 1980s to fund what turned out to be white elephant projects and the profligacy of the various administrations at that time. The current perception of the populace is that government has failed to plug the leakages and wastes, which over the years have become institutionalised in the states.

The total public debt for the country hit N159. 27 trillion by the end of 2025, according to the Debt Management Office (DMO). This debt profile consists of the domestic and external debt stocks of the federal and subnational governments — the 36 states and the federal capital territory (FCT). There have been more borrowings since then, mostly for suspicious projects. We are even more worried by the debts being accumulated in the states. Ordinarily, if the aim was to help many of them bridge the gap between what they receive from the federation account and their developmental needs in the areas of infrastructure, health, education, power and transportation, it would have been a laudable idea. That is currently not the case. Besides, questions are being raised on the necessity for more borrowing at a period when huge resources accrue to the states from the federation account following the removal of fuel subsidy and merging of Naira exchange rates.

Meanwhile, the indices of poverty everywhere make it difficult for us to understand the choices being made by government officials at all levels and the recklessness that drives some of the projects on which the loans are expended. Many of them are outrightly bizarre in conception and clearly irresponsible in terms of the funds expended on them. More worrisome is the fact that these debts being piled up for future generations of Nigerians are expended on projects that bring little or no returns. Clearly, many of these debts are not being taken to meet the needs of the people but rather as a conduit for all manner of economic mischief.