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High Debt Service To GDP Ratio: Nigeria In Real Danger [Update]

By Odilim Enwegbara

Prof ken ife on Tuesday live NTA, claims we are not  in debt crisis and that CIA ratings of our debt to GDP ratio is189 ahead of France ,China. His take is that we are having revenue generation crisis. It’s on live now on NTA international. Who is right or wrong here? Can we subsidise production more than consumption please as a county. ~ Princewill Bayo Aikhuemero

It is important to put the record straight. I respect Prof Ken Ife but economics respects no one. Countries he mentioned might have higher Debt to GDP but taxable component of GDP is in multiple of what Nigeria does. Available infrastructure which drive revenue is in excess of what is obtainable in Nigeria. By implementation, using Debt to GDP is necessary but not sufficient for a developing economy (Nigeria). Economists know that if it is not sufficient it cannot be accepted.

In fact, macroeconomic and finance specialists have related Debt to GDP with Debt Service to Revenue Ratio. Thus, determining the impact of low revenue on huge debt servicing, I would not like to state some economics jargons. But, clearly, the argument is not sufficient, I know Prof cannot, for instance, link the increasing debt to servicing to improve infrastructure at a commensurate level. The challenge however is revenue generation techniques and economic model we run. This is the reason why we have disparity resulting in low Debt to GDP versus Debt Service to Revenue when compared. The question is which make a country leaner and poor? It is not only low revenue from GDP but also huge debt servicing from that revenue, a bigger danger. It is well. ~ Paul Alaje, Senior Economist, SPM Professionals

Mr Ife is talking about Debt-to-GDP ratio, is ok at about 24%. But what we are talking about is rather more serious here, which is about Debt Service-to- Revenue Ratio (DSRR) which is percentage of our revenue used in servicing our debt. In other words, how much of our revenue is being used in servicing our debt, which will be above 70% by this year. ~ Odilim Enwegbara

My friend Paul went further detailing the potential crisis we face. And I can’t agree more because he is one of Nigeria’s best and patriotic economists I have come across.

He have not for sheer personal interests lied as many commercial, neoliberal economists do in this country.

Once I am free from so many engagements, I will do a full piece about the danger of our high Debt Service to GDP Ratio (DSRR).

I discuss  why in as much as our national debt is very low — which makes us creditworthy in foreign borrowing — our dangerously growing DSRR makes it extremely difficult for domestic lenders to continue lending to us. This is notwithstanding our high MPR.

Our domestic lenders already know — and I recently make clear during my recent appearance on AIT — that we will soon get to the point of using quantitative easing to buy back our naira debt or at above 100% DSRR we will become technically bankrupt.

It will happen when we will, besides our revenue, also have to borrow domestically to order to service our debt.

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