World Bank Economist warns Nigerian government against more borrowing

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The World Bank has cautioned the Nigerian against borrowing to develop the nation’s infrastructure and stimulate the economy.
World Bank Senior Economist, Gloria Joseph-Raji, said this in reaction to Mrs. Kemi Adeosun’s comments that the administration needs to borrow more to achieve infrastructural development.
Adeosun had said at a press conference marking the conclusion of the 2017 World Bank/International Monetary Fund Annual Meetings in Washington DC, that the administration could tolerate a little bit more of borrowing because other developed nations borrow more.
“Nigeria’s debt-to-Gross Domestic Product ratio is one of the lowest actually. It is about 19 per cent. Most advanced countries have over 100 per cent. I am not saying we want to move to 100 per cent. But I’m saying we need to tolerate a little bit more debt in the short term to deliver roads, rail, and power.
“That, in itself, will generate economic activities and jobs, which will then generate revenue which will be used to pay back (the loans). It is a strategic decision that as a country we have to make.
“What I will assure you is that this government is very prudent around debt. We don’t borrow recklessly. We have no intention of bequeathing unserviceable debts to Nigerians. What we are simply trying to do is to ensure that we create enough headroom to invest in the capital projects that the country desperately needs,” she said.
Adeosun added:
“I don’t think any Nigerian will argue with us that we don’t need to invest in power. There is no Nigerian who will argue that we don’t need to do the roads. There is no Nigerian who is honest who will tell us that we don’t have 17 million units housing deficit. So, our vision for Nigeria is not for us to continue hobbling as a poor nation.
“That is the message I took to the meetings yesterday. We are a middle-income country. By classification, Nigeria, Angola and South Africa are middle-income countries. So, we have to benchmark ourselves against those who wish to join and to do that, we have to fix our infrastructure. We will do it jointly and as efficiently as possible. But the key is revenue.”

However, World Bank’s Joseph-Raji said that dwindling revenues had raised a concern both at the Federal Government and the World Bank on the sustainability of Nigeria’s borrowings as debt-to-revenue ratio had increased by 25 percent within a period of one year.
“Nigeria has a decent debt-to-GDP ratio, currently about 19 percent. It is the debt to revenue ratio that is of concern and that rate is a sustainable issue. That is of concern to us and that is also of concern to the government”, she told Punch.
“The government is aware that the debt is looking more unsustainable from the point of debt service to revenue ratio. The estimate we had for last year at the federal level was about 60 percent. That is coming from about 35 percent in 2015.
“That reflects the substantially lower revenues that Nigeria recorded last year. Even among the state governments; we know that a lot of state governments are servicing a lot of debts from their federation account allocation. So, there is really going to be a sustainable issue emerging.

“Before now we had a debt portfolio of about 80 percent domestic to 20 percent external. We know that the debt servicing cost of domestic debt is really high. Treasury bill is an average of 18 percent; the FGN bonds, from 16 percent.
“The government is trying to rebalance its portfolio with foreign debt, which has much lower interest rate than domestic debt. That is why this year you have seen them go for Eurobonds, with a total of $1.5bn in the first quarter of the year.
They also did Diaspora bond of $300m. If you look at the yield on those bonds, they are much less than 10 percent. The government is aware that there is a sustainable issue and that is what they are trying to correct by taking more foreign debt.”

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