I had an article in the guardian last Tuesday where I argued that the country already had serious debt problems and that adding an extra $30bn might tip us into a debt crisis. I argued, at the very least, for a debt sustainability report detailing the outcomes given various scenarios.
The debt management office does publish an annual debt sustainability report. The recommendations from the last report are a bit “interesting” to say the least. The report says the federal government could borrow a maximum of $22bn a year. How do they get to this conclusion? You guessed it. The famous debt to GDP ratio which as I have argued is useless metric for Nigeria.
To be clear, in their report they acknowledge the FG is already over the recommended threshold on both the debt to revenue ratio and share of revenue going to debt servicing. So even though the FG is already in the red with regards to those two metrics, the DMO still recommends extra debt which is all rather curious.
The DMO is hanging its neck on the idea that the tax revenue will go up. Unfortunately it is mostly not very wise to make recommendations based on hopes and dreams. Best to make recommendations based on facts. And the facts are that tax revenue is falling, not growing.
To be clear I do not think there is anything wrong with taking on the debt. However, it must all go into infrastructure projects that are liberalized enough to repay the investment without extra budget support. The FG must also commit to not reducing the capital expenditure share in its budget, because we all know money is fungible.