The Islamic Development Bank (IDB) has revealed on Tuesday that Nigeria is a nation which spend almost all its revenues to service debts, subsequently causing the economy to haemorrhage.
Nigeria, it said, is one of the countries in the world using the largest percentage of its revenues for debt payment.
The APC Kaduna Central, resident representative of IDB in Nigeria, Abdallah Kiliaki, made this known when he visited the the Chairman, Senate Committee on Foreign and Local Debts, Senator Shehu Sani.
Abdallah Kiliaki, said that Nigeria’s debt owed by both the states and Federal governments now stands at $60billion, whereas the Gross Domestic Product (GDP) ratio of Nigeria’s debt was rated to be as low as 17 per cent, the revenues being deployed to service the debts were outrageous, rising to the tune of 80 per cent of the nation’s earnings.
Abdallah Mohammed Kiliaki, stressed that Nigeria stands the risk of running into economic stampede if it continues to deploy huge sums to service debts.
The IDB representative said there is urgent need for Federal Government to expand the scope of its resources through diversification of the economy into other critical areas, especially agriculture, on the template of value addition from production, to processing and to export, if Nigeria must save itself from getting suffocated by such huge debt servicing with limited resources.
My visit is very crucial because we need to look at the debt profile of a country before we give it new contractual sort of financing. We also work closely with the International Monetary Fund and the World Bank to ensure that our financing has the required threshold of grant financing which is normally 35 percent but at the same time, there is financing that is not a burden to a country to the extent that the debt may not be sustainable.
When talking about unsustainable debt, it means that a country or a borrower is unable to pay. So, we take very serious note of that. When you look at the debt GDP ratio of Nigeria, it is very low, it is very low. It is 17 per cent compared to Italy and other countries which is about 150 per cent while that of the United States is about 100 per cent.
But there is a caveat; it is true that debt to GDP ratio is low but when you look at the amount, the revenue, to debt servicing ratio, the amount of money that the government is collecting, the revenue of the government vis-a-vis the ratio to the total debt, I think Nigeria pays about 75 to 80 per cent of its revenue to service debt. So, this is very, very high compared to other countries where they use just 10 per cent.
He said. Then he continued,
What this means is that one, the government of Nigeria needs to expand or mobilize additional resources through taxation by broadening the tax base but at the same time, we as lenders, financiers, we need to reconsider our conditions of financing meaning that we should try as much as we can, to extend to Nigeria, financing that will not make it difficult for the country to pay its debt.
In a nutshell, as clearly shown by available financial records, Nigeria still has considerable leverage of taking loans from multilateral financial institutions for development or investments purposes going by her very encouraging low ratio of debts servicing to GDP but the factor of dwindling revenues being used to service the debts must be urgently looked into by way of possible expansion.
Senator Shehu Sani in his response said international banks and other multilateral financial institutions should stop encouraging Nigeria to keep borrowing in view of its low debt ratio servicing to GDP.
Stressing that whereas the debt ratio to GDP put at 17 per cent may look good, it may subsequently cruise at 77 per cent if it continues unchecked and consequently bring the country back to its former place in 2006 before London and Paris clubs granted it debt forgiveness.
He said Nigeria’s total debt amounted to $60 billion out of which $10.6 billion is foreign loan. He promised that the committee would henceforth monitor every dime that any government borrows in Nigeria.
In his words;
Available records have clearly shown that Nigeria’s total debt profile stands at $60billion out of which $10.6billion is from foreign loans. Borrowing should simply be a last option for any serious minded government and not just first option way out of problems at hand because we don’t need to overburden our next generations for repayment of needless loans taking before their time.
Sani described the IDB as a development partner renowned for its ethical values and commitment to development in third world nations.
Already, President Muhammadu Buhari has budgeted N1.361 trillion to service debt this year as against N953.6 billion proposed in 2015.