Nigeria’s growing debt handicaps future workforce

Nigeria’s growing debt service bill is on course to bring about dire consequences for its future generations, economy watchers have warned, saying this will slow down economic growth and development.

BusinessDay analysis of the available data from the Budget Office of the Federation and BudgIT, a Nigerian civic organisation, shows that Nigeria’s budgeted expenditure on education and health from 2012 to 2014 (N2.14 trillion) exceeded the debt service cost of N1.86 trillion.

But from 2015 to 2024, the budgeted debt service cost, which was N33.7 trillion, was more than the bill for human capital development of N16.5 trillion.

“With the level of mismanagement of the previous debts written off for the country, it will be almost impossible for any administration to get a similar gesture in the continent,” former President Olusegun Obasanjo was quoted in a statement as saying at an event earlier in the month.

“The coming generations will have no choice but to pay the current debt being incurred by different countries on the continent,” he added.

Over the past nine years, the actual cost of servicing debt has been more than the budgeted amount. In the first nine months of 2023, it rose to N5.79 trillion from N908.9 billion in the same period of 2015.

“Today’s debt is denying us of tomorrow’s growth and is creating the environment for more debt. The debt servicing makes it difficult to invest in those sectors, making us set the future to be in an even worse place,” Ikemesit Effiong, partner and head of research at SBM Intelligence, said.

He said Nigeria’s young people are the ones whose productivity capacity and energy will push the economy forward and then empower it to pay down debt and also grow the economy.

“So, not investing in them is setting yourself up to an even smaller economy before now and a country that is super dependent on borrowing to get funds,” Effiong added.

Adeola Adenikinju, president of the Nigerian Economic Society, said much of the country’s debt is not spent on things that can pay for themselves or can lead to capital for development.

“You will find out in the future that we will be depicting what is available for the future generation to finance the debt that we have incurred in the past,” he said.

According to the professor of economics, the most important factor in the future is human capital as it is the main driver of growth.

“So, if you are not preparing for that future by investing in education and health, then it means that your ability to compete with other countries and position yourself as a development hub may be compromised,” he said.

Africa’s biggest economy has seen its public debt grow steadily to levels that have left many worried as government revenues remain low. Its debt-to-GDP ratio was increased from 25 percent to 40 percent in 2021.

Debt service costs gobbled up 96.3 percent of government revenue in 2022, up from 83.2 percent in the previous year, according to the World Bank.

As of September 2023, debt service was N5.66 trillion, representing 40 percent of aggregate expenditure and 64 percent of revenue, Atiku Bagudu, minister of budget and economic planning said while presenting the highlights of the 2024 budget proposal.

He said the debt service cost exceeded the budget by N1.68 trillion mainly due to interest on Ways and Means of N1.89 trillion and generally higher interest rates on borrowings.

The Debt Management Office said in September that the total public debt rose to N87.38 trillion in the second quarter of last year from N49.85 trillion in Q1. It increased to N87.91 trillion at the end of Q3.

A recent report by the United Nations titled ‘A world of debt’ said the growing burden to global prosperity has been translating into a substantial burden for developing countries due to limited access to financing, rising borrowing costs, currency devaluations and sluggish growth.

“Countries are facing the impossible choice of servicing their debt or serving their people. Today, 3.3 billion people live in countries that spend more on interest payments than on education or health. A world of debt disrupts prosperity for people and the planet,” it said.

Experts are sounding alarms over Nigeria's escalating borrowing costs, warning of potential threats to the stability and prosperity of future generations. Over the last decade, the federal government has allocated more funds to servicing its debt than to critical sectors such as health and education.

In the period from 2012 to 2014, the budgeted expenditure on health and education surpassed the debt service cost. However, from 2015 to 2024, the budgeted debt service bill skyrocketed, exceeding the combined allocation for health and education. This shift raises concerns about the prioritization of financial resources between servicing debt and investing in the nation's human capital development.

Nigeria, being the continent's most populous country, has experienced significant demographic shifts. It has surpassed Brazil to become the world’s sixth-most populous country, with an estimated population of 219 million people. By 2050, it could potentially claim the position of the world’s third-most-populous nation.

The country's youthful population has become a target for developed nations grappling with staff shortages. Nigeria's working-age population is projected to rise significantly, contrasting with declines in working-age populations in countries like Germany.

However, despite the demographic potential, Nigeria has faced economic challenges, including recessions, high unemployment rates, and inflation. The poor macroeconomic conditions have contributed to a significant brain drain, with many young people seeking opportunities abroad.

Foreign investments have dwindled, and the government's limited focus on economic diversification has hindered the nation's development. The lack of visionary policies has resulted in an exodus of skilled individuals seeking better opportunities in other countries.

Nigeria's ranking in human capital development and global innovation indexes has been subpar, reflecting challenges in education and innovation. The World Bank projects a growing need for jobs among Nigerian youth, highlighting the urgency of addressing unemployment and fostering economic growth.

Lawmakers' approval for the securitization of government debt has raised concerns about the country's increasing public debt. Critics argue that, despite borrowing to improve the nation, the lack of emphasis on talent and human capacity development is detrimental, as it feeds into a cycle of brain drain and limits the nation's economic progress.

In response to these challenges, analysts propose a shift from exporting low-value products like crude oil to exporting brain capital. Embracing brain exports could not only attract foreign exchange but also contribute to economic development through the integration of brain health and skills in the knowledge economy. The call is for Nigeria to recognize its potential, invest in human capital, and leverage brain exports as a catalyst for sustainable economic growth.

Source: Business Day Newspaper