Sanusi Lamido Raises Red Flag Over Nigeria’s Escalating External Debt

Former Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, says Nigeria’s external debt is a serious red flag for the economy.

He said it is no cheering news that the external debt profile to total revenue grew from eight per cent in 2011 to over 400 per cent in year 2020.

Sanusi said though Nigeria has a debt services ratio of up to 90-96 per cent, there are certain other fundamentals of debts that experts are not paying attention to, adding that;

“If you go through the CBN statistical bulletin, in 2011, the total federally collected revenue from all sectors was 18.9 trillion Naira at 165 Naira to the dollar. This will have placed federally collected revenue in 2011 at $55.5 billion.”

Sanusi, who was deposed as Emir of Kano by the Governor Abdullahi Gandujae-led administration, raised the alarm while participating in an online roundtable discussion organised by Heinrich Böll Foundation and tagged: “Debt Relief for a Green and Inclusive Recovery in Nigeria”.

Noting that the nation’s external debt to external revenue was about eight per cent in 2011, the former CBN boss said; “By 2020, we have an external debt of about $33.4 billion but all revenues in 2020 were about $8.3 billion. So, it has moved from 8 per cent to 400 per cent between 2011 and 2020.

“And this is a serious red flag that I’ve not seen being pointed out in the conversation around debt sustainability, especially given the facts that exports are yet to be diversified at the book of our revenues from oil sectors given what we’ve seen and what have been discussed today about the prospect of hydrocarbons as we move into a greener world.”

Amid dwindling oil income, the country’s debt situation has become a source of concern for development experts in recent years and Sanusi admits that in measuring debt sustainability, the debt to Gross Domestic Product (GDP) ratio is a “useless metric”.

According to him; “You do not service debt out of GDP. You service debt out of revenues. If only 20 per cent of your GDP is paying taxes, if you have a debt GDP ratio of 20 per cent, you are likely to have a debt service to revenue ratio of 100 per cent.

“So, for a long time, I have been concerned about this idea that if (having) 25, 30 or 35 per cent debt to GDP ratio is fine, because you’ve got countries that are activating 90 per cent.”
The fearless critic of government said in countries where debts to GDP numbers are high, tax is a major component of government revenues, this is as he cautioned that high interest rates with high debts could lead to difficult financial situations.

For him, another key part of the nation’s debt profile is the components of bilateral loans, of which China is a major player, with $3.2 billion of Nigeria’s $4.1 bilateral debt, that’s about 78 per cent.

He said any talk about debt sustainability has to involve China as a very dominant player, stressing that debt relief calls are important, but the countries must show serious commitment and review the structure of its government and economy.

With countries beginning to lift COVID-19 restrictions on travels, Sanausi said there will be higher demand for forex on travel, further putting pressure on Nigeria’s exchange rate regime.

“When the world reopens and people start travelling, that is going to lead to an increase in demand on forex for travel and that is going to exert further pressure on the balance of payments.

“Now, these are the kinds of considerations I think we need to bear in mind when we talk about the sustainability of a debt situation.

“Honestly, I think debt relief is very necessary if this country is going to have the fiscal space to pursue any kind of developmental objectives. We can’t be spending 90 or 100 per cent of our revenue on debt service and don’t have anything to invest in development”, he said.