Alhaji Lamido Sanusi, the former Emir of Kano, has taken a swipe at the country’s economic and political trajectory, stating that Nigeria may never succeed if the current unsustainable structure is maintained.
The former governor of the Central Bank of Nigeria (CBN) spoke during an online roundtable with the theme: “Debt Relief for a Green and Inclusive Recovery in Nigeria?” organised by the Centre for the Study of the Economies of Africa (CSEA) and the Heinrich Böll Foundation.
Sanusi insisted Nigeria would continue to struggle because it’s structure is made up of a hugely unwieldy political system and an economy that mostly benefited those at the top.
The former Chief Executive Officer at First Bank of Nigeria (FBN), while noting that the benefits of debt forgiveness were lost in the past because of the country’s penchant for spending on overhead rather than development, posited that one of the conditions for debt forgiveness for Nigeria should be its commitment to enunciate clear policies on how it intends to control its population.
Sanusi also described the parameter for calculating the sustainability or otherwise of the country’s over $33 billion debt, which is Gross Domestic Product/debt ratio as useless, saying that debts were not paid or serviced from GDP but from the country’s revenues.
The Federal Government has always argued that the GDP/debt ratio was still below its projected ceiling despite the criticisms that have trailed the country’s increased borrowing.
My first comment on debt sustainability and obviously, if you have been following my comments since my days in the central bank is that the debt to GDP ratio is basically a useless parameter. You do not service your debts out of GDP; you service it out of your revenues.
If you have a debt to GDP ratio of 8 per cent, you are likely to have debt service to revenue ratio of 100 per cent. So, for a long time, I have been concerned with this idea that if you are on 25 per cent or 30 per cent of debt to GDP ratio, it is fine because you have got countries that have 18-19 per cent and revenues is from taxes while in Nigeria it is from oil.
According to Sanusi, high-interest rates with high debts could lead to difficult financial situations, saying that Nigeria currently has a debt servicing ratio of between 90 to 93 per cent.
He argued that Nigeria was not paying attention to the ratio of its external debts to its external reserves, stressing that while in 2011, total federally collected revenue was $8.9 billion, with debt being about $5 billion, it has since then skyrocketed.
The former monarch stated that external debt increased to $33.4 billion by 2020, while oil revenue stood at $8.3 billion, an increase of about 400 per cent, saying that it was a red flag that had not been pointed out despite all the conversations around Nigeria’s debt sustainability.
A second element he noted, is the breakdown of the 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, adding that any talk about debt sustainability has to involve China as a very dominant player.
Sanusi posited that very soon, as countries begin to lift COVID-19 restrictions, leading to personal travels, there will be increased demand for forex, further putting pressure on the country’s exchange rate, describing the situation as dire.
He said that the call for debt relief is generally in the right direction, noting that although he supports the efforts at getting Nigeria’s creditors to do so, Nigeria needs to show serious commitment and generally review the structure of its government and economy.
He said that Nigeria needs to invest in education and agriculture, which he said has grown because of the expansion of cultivation, rather than the productivity of the farmers, stressing that ultimately these two sectors will play a key role in lifting Nigerians out of poverty.
Another element is the rapid rate of growth in population and therefore I would suggest that if you really need sustainable development, debt relief can also be tied to very clear, very measurable and implementable population growth control policies.
We need to have social policies around demographic growth. There are parts of this country where the fertility rate is more than eight live births per woman. Some parts are also highly polygamous.
There’s no way you can continue growing at 3.4 per cent when your economy is growing at a slower rate and expect to deal with poverty. We should fashion policies around population, education, targeted programmes to reduce out of school children, quality jobs etc.
Sanusi noted that setting up factories could also lead to economic growth, for instance, the manufacture of solar panels in-country instead of the current massive importation.
He stated that what happened in the past when debt relief was granted was that Nigeria went back on spending on overheads, on unnecessary petroleum subsidies and paying scam subsidies on fertilisers, insisting that it has not helped the country.
Instead, Sanusi urged Nigeria to invest in the Sustainable Development Goals (SDGs) including education, healthcare, renewable energy, skills development and productive agriculture.
The former CBN governor opined that it wasn’t the time for massive fiscal consolidation, which would include tax increases and retrenchment of workers and bemoaned the current political structure in the country, which in some ways encourages big government and recurrent spending.
We have 36 states, 774 local governments, each LG has a chairman, a speaker, at least 10 councillors, the state has a governor, deputy and legislature. You can imagine the hundreds of legislators.
In his intervention, a former Senior Economist at the World Bank, Brian Pinto, said there was a need to help vulnerable countries surmount the huge impact of covid-19, but doubted if Nigeria was ready to do the hard work.
Pinto, who is credited with heading the team at the World Bank that wrote the report leading to debt relief of over $19 billion under the Olusegun Obasanjo administration argued that history had continued to repeat itself in the country.
If Nigeria asks for debt forgiveness, I am guessing that official creditors could drive the process but will ask at least four questions: transitioning from fossil fuel to green economy which is a complicated transition. What can Nigeria do? The first is to improve oil wealth management and re-establish credibility.
Pinto queried whether the poor and vulnerable Nigerians benefitted from the $19 billion debt relief in the past, saying that it remains a key question that has to be answered, noting that Nigeria has not learnt much from its recent history.