It is commendable that Nigeria’s debt service-to-revenue ratio drastically dropped from a suicidal 97 per cent, under the President Muhammadu Buhari government, to a low of 68 per cent in July 2024, and was further shaved down, by a (not exactly significant) two per cent, to 65 per cent, as the fourth quarter of 2024 entered its second month.
Considering that AFREXIMBANK had predicted a gloomy debt service-to-revenue ratio of 110.4 per cent for 2024, which implies that Nigeria would have had to borrow to service its debt burden.
AFREXIMBANK that seems to see red all through, like a bull chasing a matador, adds that Nigeria may be able to reduce the ratio to 62.6 per cent in 2025 if government continues with its structural reforms and fiscal management policies.
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As recently as July 2024, AFREXIMBANK’s Nigeria Country Brief 2024 Report predicted that “The debt service-to-revenue ratio has increased significantly, from 33.8 per cent in 2017, to a projected 110.4 per cent in 2024, signaling potential difficulties in meeting debt servicing obligations, relative to revenue generation.”
The history is that between January and October 2022 ending, Nigeria spent 99.3 per cent of its revenue to service debts, but this was successfully trimmed to 66.9 per cent during the corresponding period in 2023, the year President Buhari yielded power to President Tinubu, who justifiably boasts, “We have taken the bull by the horns… We are not shirking our responsibilities; we are confronting it head-on.”
This hard-headed approach of the Tinubu administration to overcoming the cash flow quandary is better than the approach of Zainab Ahmed, President Buhari’s Minister of Finance, who kept deliberately misleading Nigerians toward considering the deceptively benign debt service-to-GDP ratio to gauge government’s cash flow, instead of the more cash constricting debt service-to-revenue ratio.
But as we rejoice at this “feat,” we must also recognize that removal of subsidy that frees up the cash flow, much of which is now paid to state and local governments that now offer to pay more than the N70,000 mandatory national minimum wage, is the silver bullet solution to “confronting (the debt service-to-revenue debacle) head-on.”
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So, it is not so much that the revenue has increased by the deft moves of the President’s economic team, or that the nominal figures of the debt servicing has decreased, but that the portion hitherto paid out as subsidy remains in the Federation Account, and is now made available for purposes other than payment of the subsidy bill of the downstream petroleum sub-sector and the electricity sector.
But while we appreciate that more cash is being channeled into the economy, as increased salaries to energise citizens’ effective demand of (albeit mostly imported) strategic consumer goods, we were hoping that government would have invested much of the cash that has been freed up to upgrade the critical national grid that is owned 100 per cent by the government, and has broken down more than 80 times within the last nine and a half years.
Other critical areas that are begging for attention are the completion of Ajaokuta Steel Complex in Kogi State, further expansion of the railway system, recruiting, arming and paying better remuneration to more police officers to improve the security of the rural farming communities, and enabling Nigerian National Petroleum Company Limited establish new and modern refineries, or retrofit the four refineries that it has woefully failed to run effectively, if they are not too obsolescent.
The excess cash flow from subsidy savings and the increased inflow of revenue from the expected increase of petroleum production by one million barrels per day should not be frittered away as was done with Udoji Award, Adebo Award and sundry other wasteful ventures in the 1970s era.
In times past, Nigeria seemed not to know what to with its sudden wealth, hence decided to use it in paying salaries of workers in some Caribbean countries, staging the Second Festival of African Arts and Culture and spending on other white elephant projects, among others.
It is a good thing that Mr. President is an accountant and will therefore appreciate this argument. It is not enough to just stem the wasteful flow of funds used in paying subsidies. He must use the “unexpected” gains wisely.
After he might have artfully managed the negative aftermaths of removal of petrol and electricity subsidies, he should not fritter away the cash flow gains. In Scandinavian countries, unexpected funds or savings are invested in sovereign funds.
Because President Tinubu will not be encountering strong-willed governors, like Babatunde Fashola of Lagos State, who sued former President Goodluck Jonathan to demand for their share of Excess Crude Account funds, he can invest savings from removal of subsidy on smarter options.
