The World Bank, yesterday, said that Nigeria spent $9.6 billion to service foreign debts in 12 years, from 2010 to 2021, adding that the nation’s debt stock is not reflected in the economy.
The World Bank disclosed this in its International Debt Report, IDR, which showed that Nigeria’s foreign debts rose astronomically by 305 per cent during the 12 years.
According to the report, Nigeria’s external debt stock rose to $76.21 billion in 2021 from $18.39 billion in 2010. As at first half 2022, Nigeria’s foreign debt had risen to $103 billion.
Similarly, annual interest payment on external debts rose sharply by 2,819 per cent to $1.73 billion in 2021 from $59.3 million in 2010.
The external debt, according to the World Bank, refers to debt owed to nonresidents repayable in currency, goods, or services. It is the sum of public, publicly guaranteed, and private nonguaranteed long-term debt, short-term debt, and use of IMF credit.
The report also showed that principal repayments on Nigeria’s external debt gulped $30.66 billion during the 12 years period, while annual principal repayment rose by 469 per cent to $6.77 million in 2021 from $1.189 million in 2010.
Following the sharp increase in the external debt stock and interest payments, the World Bank report showed that Nigeria’s debt ratios deteriorated, with External Debt stock to Export worsened to 144.4 per cent in 2021 from 22.5 per cent in 2010. Similarly, the nation’s External Debt Service to Export ratio worsened to 16.5 per cent in 2021 from 1.5 per cent in 2010.
According to the World Bank, Nigeria and other developing countries are facing rising debt-related risks, noting that rising interest rates and slowing global growth risk tipping a large number of countries into debt crises. About 60% of the poorest countries are already at high risk of debt distress or already in distress.
Economy not reflecting level of borrowing
Meanwhile, the World Bank Country Director for Nigeria, Shubham Chaudhuri has said that the nation’s economy does not reflect the huge level of debt stock, adding the World Bank is concerned that the cost of debt service exceeds the nation’s revenue.
Similarly, World Bank Lead Economist for Nigeria, Alex Sienaert added that the high cost of debt service is not sustainable, as the country now increasingly relies on borrowing to do anything.
Speaking in Lagos at a roundtable with media executives, Chaudhuri, said, “Nigeria has huge potential and often you can see it from the impact of the Nigerians in Diaspora and the rest of the world as well as the potential you see within Nigeria right now.
“But Nigeria has huge challenges. The basic thing, that is as little as investing in its people, Nigeria has not done a lot in that regard and in terms of enabling private firms to grow and create jobs, that hasn’t happened and without those two things, Nigeria would never get out of the situation it finds itself presently.
“Essentially, if you look at from the 1980s down to 2020, average income hasn’t really grown. Take Indonesia which is very similar to Nigeria, you will see the difference. Both countries had similar average income in the eighties. Good times come with oil prices being high. Nigeria is at a critical juncture and there are three different paths that Nigeria can take.
“The most likely path is what we call business as usual. But why are we sounding the alarm? For the first time in Nigeria’s history, what should be good times has actually become negative for the country.
“Oil prices have headed up, while oil and gas revenue has headed down. Petrol subsidy is not really helping the poor and should be taken away. Another reason why things are different this time for Nigeria is that for the first time, the cost of debt service has exceeded its revenue.
“Another thing is that when oil prices go up, Nigeria’s current account balance goes up and usually forex reserves go up. But for the first time, just as we saw with revenue, forex reserves have continued to decline. So, the question is, where are all those borrowings going to?”
Also speaking at the event, Alex Sienart, said, “Nigeria’s debt stock relative to the size of its economy is not that big, compared to a country like Kenya. But what you have to look at is what it is costing the country to finance the amount of debts the country has accumulated.
“For every naira the country earns, immediately, more than half of that goes back as interest payment for its debts. So, even though Nigeria doesn’t have a debt problem, it has a revenue problem. No matter how you look at it, the point is that this is not sustainable.
“As your debt obligation begins to outpace your revenue base, you now have to be borrowing increasingly to do anything else, and even to service the interest on your loans.
“The parallel forex market premium is a reflection of the scarcity of forex. The financial markets have noticed these challenges and that has consequences on Nigeria’s risk premium and increases Nigeria’s financing cost.”