Nigeria’s rising debt, decline in external reserves slow economy
ABUJA - The recent rise in the nation’s debt profile and continued decline in the external reserves are slowing down the recovery and growth of the economy.
Experts attribute the disturbing situation to the approaching general elections in February next year and the exit of foreign portfolio investors for fear of losing their investments.
The International Monetary Fund in March 2018 identified the major problems of the Nigerian economy as huge fiscal deficit, low economy diversification, increasing domestic risks, and rising banking sector risks, all of which still persist till date, according to an investigation by our correspondent.
The IMF report, titled ‘Article IV consultation on Nigerian economy for 2018’, noted that increasing debt accumulation by the government was an indication of weak revenue mobilisation by the government.
It was discovered that despite the tax drive of the current government, it still heavily relied on external debts to fund its annual budget.
For instance, the Minister of Budget and National Planning, Senator Udo Udoma, has said the Federal Government will borrow N1.6tn to finance part of the N9.12tn 2018 budget.
And of the amount, N793bn would be borrowed domestically, while N849bn would be borrowed from foreign sources.
The nation’s total debt stood at $74.2bn (N22.7tn), according to data from the Debt Management Office on August 10.
The PUNCH on June 21, 2018 quoted the DMO as saying the public debt increased from N21.73tn ($71bn) in December 2017 to N22.71tn ($74.28bn) as of the end of the first quarter of 2018.
According to the IMF, bonds-raising programmes of the government have also crowded out the private sector, reducing the credit-raising opportunities for private businesses.
It expressed concerns over the country’s high dependence on oil sector, saying the country was dragged into and brought out of recession by one sector – oil and gas. wExperts note that surplus revenue from oil proceeds, expected to be kept in the Excess Crude Account, is often depleted with no tangible explanation.
A professor of Economics at the University of Nigeria, Nsukka, Hyacinth Ichoku, said the decline in external reserves could be as a result of the forthcoming elections. He said politicians would be doing a lot of borrowing to impress the populace and their constituencies.
According to him, the demand for reserves would worsen as the elections draw nearer.
He said that the withdrawal of funds from the economy by foreign investors due to fear of losing their investments and the reduced level of production of crude oil could also be the reasons for the decline in the reserves and increased debt.
He, however, noted that the negative effect and impact of these activities would not be felt until after the elections.
The nation’s external reserves have been declining for three consecutive months, from $47.852bn on May 9, 2018 to $46.759bn on August 8, 2018, losing $1.093bn.
The IMF, in the report, stated that there were many banking sector vulnerabilities, and advised that they should be contained.
Although it lauded the move by the Central Bank of Nigeria to increase capital buffers of weak banks by preventing dividends payment, more efforts were needed to drive the economic growth.
The Managing Director, Cowry Asset Management Limited, Johnson Chukwu, said the decline in external reserves could be attributed to the exit of foreign portfolio investors.
According to him, the exit of foreign portfolio investors is having a direct impact on the reserves, and is the major thing driving down the external reserves. He said the exit was expected as investors might not want to continue to hold assets until after elections.
“The political crisis that we have seen in the past few days can also be a reason for the exit of foreign portfolio investors; but I have no fear or predictions that this would lead to any economic crisis,” Chukwu added.The nation’s foreign exchange reserves have fallen by $990.98m this month, latest data from the Central Bank of Nigeria showed on Sunday.
The external reserves, which stood at $47.11bn at the end of last month, declined to $46.128bn on August 23, 2018.
The CBN noted that the evolution of the forex market in the country had been influenced by a number of factors such as the changing pattern of international trade, institutional changes in the economy and structural shifts in production.
“The political crisis that we have seen in the past few days can also be a reason for the exit of foreign portfolio investors; but I have no fear or predictions that this would lead to any economic crisis,” — Johnson Chukwu