A member of the Presidential Economic Advisory Council (PEAC), Bismarck Rewane, has suggested three options Nigerian can adopt to resolve the lingering debt burden.
He also urged the incoming administration to be courageous in implementing sound policies that will get the economy back on track.
The options are:
•approach the International Monetary Fund (IMF) for a policy support instrument (PSI),
•debt conversion; and
•debt restructuring.
Nigeria’s total public debt, which stood at N46.25 trillion (about $103.1 billion), as at December 31, 2022, puts the country at the tip of a debt crisis.
According to the data released by Debt Management Office (DMO), the figure accounted for the total debt owed by the federal and state governments, as well as the Federal Capital Territory (FCT), Abuja.
Some economic experts have asked the government to take appropriate steps to avoid repayment default, warning that dwindling revenue and interest rates hike may worsen the debt situation.
Rewane, who is Managing Director, Financial Derivatives Company Limited (FDC), advised the Federal Government to approach the International Monetary Fund (IMF) for a policy support instrument (PSI).
In the latest Financial Derivatives Monthly Economic Update, Rewane explained that the PSI option permits the IMF to provide policy advice and support to Nigeria on expertise and guidance on economic policies.
He said: “The PSI is intended to provide a flexible and tailored approach to policy support, with the goal of helping the country develop and implement sound economic policies and promote sustainable economic growth.
“The PSI will necessarily usher in the implementation of critical reform policies such as exchange rate reforms, subsidy and pricing reforms, and other market reforms aimed at removing production impediments and increasing public revenue.
“The PSI will help Nigeria meet the ‘conditionalities’ for a talk with its creditors. A sovereign debt restructuring can take several forms, depending on the severity of the country’s financial situation and the willingness of its creditors to negotiate. Some possible forms of debt restructuring, include debt cancellation, debt restructuring, and debt conversion.”
The alternative to the PSI option, Rewane said the government can embrace the debt restructuring option.
“This is not necessarily a separate option from the PSI, but remains feasible because sovereign default is a kiss of death and, thus, not an option”, he warned.
According to him, sovereign debt restructuring can be a complex and challenging process, as it often involves negotiating with a large number of creditors with different interests and priorities.
“A sovereign debt restructuring can take several forms, depending on the severity of the country’s financial situation and the willingness of its creditors to negotiate. Some possible forms of debt restructuring, include debt cancellation, debt restructuring, and debt conversion,” Rewane said.
The FDC listed fiscal consolidation as another option that could be adopted by the government.
He said fiscal consolidation focuses on reducing a government’s budget deficit and debt levels through a combination of spending cuts such as trimming down the size of the government, removing subsidies; revenue increases such as broadening the tax base and structural reforms such as privatising state-owned enterprises, deregulating industries, or reforming public sector pensions.
He said: “Fiscal consolidation involves difficult choices that eventually have significant social and economic impacts.
“In the end, doing nothing is not an option. The new administration must make the hard choices to save the economy from collapse. Flagrant violations of the Fiscal Responsibility Act (FRC) must be discontinued.”
Rewane disclosed that Nigerian began building up sovereign debt after the debt forgiveness of 2004 to 2005.
According to him, the national debt rose from N15.8 trillion in 2014 to N19.4 trillion in 2015.
Rewane, who put the percentage rise at 22 within a year, also disclosed that after raising the debt stock by 419 per cent in 10 years, productivity growth stood at 0.2 per cent and infrastructure stock stagnated at 30 per cent of the Gross Domestic Product (GDP).
He said the Federal Government’s debt service to revenue ratio exceeded 90 per cent, adding that N5 trillion of the borrowed funds in 2022 were spent on recurrent expenditure.
Rewane said: “Notwithstanding that the debt-to- GDP ratio is still below the self-imposed benchmark of 45 per cent, the inability to invest borrowed funds in productive projects has weakened the nation’s ability to repay its debt.”
