Nigeria’s debt burden, rising inflation, Tinubu’s biggest nightmare

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As Bola Ahmed Tinubu takes over today May 29, 2023 as Nigeria’s 16th President, he will be inheriting a battered economy weighed down by huge debt burden, inflation, chronic unemployment and declining revenue.

Nigeria’s debt profile stands out among these problems like a sore thumb. The country’s external debt stock – what it owes non-residents – was $41.69 billion in 2022. Inflation also rose to 22.22 per cent in April 2023 from about 9.0 per cent in May 2015.

Meanwhile, with the recent borrowing spree by the federal government and the National Assembly’s approval of the Central Bank of Nigeria’s Ways and Means advance to the federal government, the Nation’s external and internal wealth could have surpassed N80 trillion.

Similarly, at the Central Bank of Nigeria’s (CBN) official window, the naira has weakened by 264 (57.26 percent) to N463.67 kobo per dollar as of May 26, 2023 from 197/$ in 2015 when Buhari assumed office, and traded at over N760.87/$1 at the black market.

Speaking on the challenges that the incoming administration of Bola Tinubu may face due to these issues, Tilewa Adebajo, the Chief Executive Officer of the Creative Financial Group (CFG) Advisory said, “The biggest challenge that Bola Tinubu’s administration faces is the debt profile.”

He made mention of the 2023 budget, where there was a deficit of over 11 trillion naira. “His immediate challenge is to run out the budget for this year, set up his economic management team to be able to see the economy through the end of the year, and then prepare his own budget, his initial budget for 2024 with a renewed economic plan based on that.”

“So, we need to restructure that debt internally and I think debt restructuring is something that we can sit down, we can negotiate and put the structures in place.”

Advising the new government, Chief Executive Officer of SD & D Capital Management, Mr. Idakolo Gbolade urged the incoming government to look for ways to restructure and negotiate Nigeria’s indebtedness to avoid collapse.

“The Tinubu-led government should by now know that they are coming for serious business, and their handling of our loan portfolio in the next six months after inauguration will be one of defining moments in the administration.

“The new government needs to devise ingenious ideas to avoid a debt trap similar to Kenya by ensuring that urgent measures are implemented to increase revenue and cut waste.

According to him, the debt situation of the country is precarious and needs urgent intervention by the new administration.

“The present indebtedness must be negotiated and repayment restructuring should be done to give breathing space for infrastructural development. The government should also look at Public Private sector initiatives on major projects as against financing mainly by additional loans”, he said.

In his own opinion, a Professor of Economics at Lagos Business School, Prof. Bongo Adi, suggested that the only viable option is for the incoming government to seek loan renegotiation, as it is the practice internationally, provided the government has credibility.

“With such a colossal debt burden without apparent means of repayment, the already unsustainable debt profile undermines fiscal sustainability, no matter what the next government will do.

Dr. Ayo Teriba, an economic expert and the Chief Executive Officer of the Economic Associates, called on Nigerians to support the call for the incoming government to focus on equity financing rather than debt to grow the economy.

“Instead of issuing debt, equity should be issued; I don’t see why Nigeria cannot attract equity. Nigeria’s prospect of attracting equity is brighter than that of India and Brazil. The clarion call is for Nigerians to support the incoming government to transit to equity issuance. Nigeria’s potential of issuing equity is greater than that of debt”, he stated.

Meanwhile, to stabilise the value of the naira, Ayodele Akinwunmi, Relationship Manager, Corporate Banking at FSDH Merchant Bank Limited, said the incoming administration should make deliberate efforts to encourage foreign direct investments in Nigeria, encourage foreign portfolio investments, block oil theft, and encourage the development of solid mineral resources to grow exports.