An renowned economist, Dr Paul Alaje, has frowned at a situation whereby Nigeria spends up to 60% of its revenue on debt servicing, describing the development as disturbing and worrisome.
According to him, the average that is allowable for countries to spend on servicing debt is about 30%.
Alaje, a Senior Economist with the SPM Professionals stated this at the Annual General Meeting of the Finance Correspondents Association of Nigeria (FICAN), in Abuja at the weekend.
“The normal circumstances for countries is not to spend more than 30%, that is one third of revenue to service debt. Nigeria has now crossed the boundary beyond using one third (1/3) of revenue, we have crossed to about two third (2/3) of revenue. The average that is allowable for countries to spend on servicing debt is about 30%, it become worrisome when our respective organization lets bring it down from house hold to firm.
“When our respective organization will start spending 50% and in the case of Nigeria up to 60% to service debt, that is disturbing, that is worrisome. What you have left it’s just 40% from your revenue in some cases less than 50%. The future, the development we are looking at in near future, now let me clarify when we say Nigeria is having N13.8 trillion budget, he stated.
Speaking further, the Guest Speaker who affirmed Nigeria’s inability to generate revenue worth 13 trillion said “in fact, in our revenue projection we have never done 100% realization of those revenue but one thing we have done, we have nearly 90 to 99% expenditure on recurrent”.
He said, “so, the worry here is that when you now move the necessary condition which is debt to GDP from 25 to 40% that means the position of debt to revenue will be worse off if debt to GDP is moved. By the time you move debt to GDP, already we are currently at about 25% allowable we are moving to 40. We should be ready for a time we will spend between 70 to 90% of our revenue to service debt.
“When you want to know whether you should continue to borrow, borrow more or to slow down, the next condition is sufficient condition which of course Nigeria is not meeting as at today but the last condition which is the most important condition is what we call debt impact that is when you look at the average growth rate of the economy and you look at average rate of borrowing according to NBS, when you put the figures on NBS together in the last 5 years you will see that our borrowing rate has increased by average of 15% but growth rate has been less than 2%.
“In fact when you add 2020 Q2 which gave us -6.1%, Q3 which gave us -3.64% and the last quarter which is 0.11%, all these figures are from NBS and maybe you will add the first quarter, by the time you look at the average that has further reduced the average from less than 2% to a little above 1%. The question is an economy that is growing in debt, that is growing in borrowing, that is growing in burden how come the impact of debt is not felt?
” If the impact of debt is not felt then it does not even make sense for such economy to even increase debt to GDP. So when you look at the numbers, they don’t add up. It fails major economic reasoning so the worry we have and I have, is that there comes a time when you think you have access to cheap funds which is not your own”, he added.