Nigeria’s indebtedness: Between earning and borrowing

The Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, struck a beautiful chord in a quote that was reported in most of the dailies on Tuesday. Clarifying issues surrounding CBN’s struggles with the release of trapped funds belonging to foreign airlines operating in the country, he made it clear that it is a […]

The Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, struck a beautiful chord in a quote that was reported in most of the dailies on Tuesday. Clarifying issues surrounding CBN’s struggles with the release of trapped funds belonging to foreign airlines operating in the country, he made it clear that it is a matter that borders on the scarcity of the dollar. The dollar is not Nigeria’s currency. So, for Nigeria as an entity to spend dollars, “We have to earn it, or borrow it,” he told said. 

Not many people will contest the fact that Nigeria’s economic problem simply derives from its poor earning capacity versus the nation’s needs. This gap accounts for the increasing indebtedness which has become a tag for Africa’s biggest economy. It is also the reason for the inability (or reluctance?) of the CBN to pay the airlines the money for which they have rendered services to Nigerians. 

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The trouble with Nigeria is that we have not been earning as much as we should, even though we have the potential to earn more. Since there is no free money in the marketplace, Nigeria’s earnings-related challenges will not abate by wishful thinking. A country’s economic strength is a function of its foreign exchange-earning capacity. In the context of a global economy, this refers to the ability of a country to produce goods and services that it can sell in the international market to outsiders who in turn will part with their money in exchange for the goods. 

So, while potentially a central bank can “print” the country’s local currency when faced with some political pressures, it does not have that power over a foreign currency. This is why we cannot spend the dollar until we earn it. 

After some levels of uncertainty or opaqueness surrounding the true state of our debt, it is now clear that Nigeria’s external debt is $40.064 billion, according to the Debt Management Office (DMO). This, according to the DMO, was stock of the country’s debt as of June 30 this year.   

A breakdown of the debt stock is quite instructive: nearly half of the debts, $19.157b or 47.82%, are owed to multilateral agencies- the IMF, the World Bank Group, and the African Development Bank Group. The next set of debts is bilateral or country-to-country and amount to $4.700b or 11.73%. The biggest component in this group is Nigeria’s debt to China, which stood at $3.928b. 

The ‘koko’ of our indebtedness comes under the Commercial debts, which comprise the Eurobonds and Diaspora Bonds. These are debts that carry commercial or market rates and for which repayment obligations are sacrosanct. There are no Diaspora bonds indicated here, so the whole of Nigeria’s commercial bonds is the Eurobonds amounting to $15.618b, or 38.98% of our debts. 

Nigeria’s challenge in respect of these bonds and other debts is how to chart a sustainable exit route in managing the attendant obligations. Nigeria has found itself in the most unfortunate situation where debt service now exceeds revenue. In the first four months of this year, for instance, the government’s retained revenue amounted to N1.63trn, while total expenditure was N4.72trn. “Alarmingly, debt service was the largest component of expenditure with N1.94 trillion, followed by non-debt recurrent expenditure…,” Agora Policy, an Abuja-based Think-tank, said in a report released this month. 

Nigeria has 13 of these Eurobonds outstanding, with their maturities stretching up to 2051. According to figures from the Debt Management Office, the country’s monthly interest expenses on these Eurobonds amount to $100m. Nigeria’s next Eurobond maturity is $500m in July 2023, while there is no maturity in 2024. Analysts believe this places the country in a good position, without much pressure in terms of cash flows arising from debt repayment obligations. 

Beyond these, Emefiele’s statement has also raised questions over whether indeed the central bank has been “printing” the naira. “Gentlemen, I can print naira, even though I have been accused of printing naira, but I cannot print dollars.”  So, as one person has asked, “Is Emefiele admitting to printing Naira”? 

The man later explained what he really meant here. Despite this, some banking industry analysts believe that some of the N22trn exposure to the government through “ways and means” was printed. This would amount to spending naira that is not earned. 

In each dispensation of the leadership of the central bank, there is always a concern about the personality of the helmsman. Will he, under any circumstance, agree to “print” money? This is a question that borders the realm of political economy. It is a question that interrogates the extent of the influence of the political system over a country’s monetary authority. Printing money has two immediate consequences: high-interest rates and inflation rates. Of course, there are no surprises on these, given the impact of a surge in money supply on the price level and the cost of credit in an economy. 

For sure, any printing of money or growth in the money supply that is not related to an increase in a country’s earnings is simply courting economic disaster. It would mean spending money that has not been earned or money to which no known economic activity has been attached or is traceable. 

All these are coming at a time when the economy is facing rising challenges bordering on the possibility of a currency devaluation, inflationary pressure, and downgrade by Moody’s which is not over yet. Nigeria needs, within the next six months, to take concrete steps to improve its market standing to avoid a further downgrade. 

The buck is back on the table of the economic managers. Will Nigeria, for instance, toe the line of Angola, a fellow African country and oil-producing nation? While both countries were lowered from B2 to B3 by Moody’s, Angola was added to positive Watch, while Nigeria was put on negative Watch.   

Some believe the difference could have come from actions that Angola undertook that raised its rating in the market. One such action was a debt buyback, under which it bought back part of the Eurobond due in November 2025. Angola sometime last year bought back $636m out of that $1.5b bond, with only $864m outstanding. 

Can Nigeria take such a bold step soon, perhaps from funds to be released from the abolition of petrol subsidy come next year? It is part of the choice we must make now.