Insolvency, the state of being unable to honour financial obligations or pay debts when due can happen either as cash flow insolvency or by balance sheet insolvency. An entity may have sufficient assets to pay what is owed, but lack suitable or acceptable form of payment. This is known as cash flow insolvency. However, balance sheet insolvency is when an entity does not have enough assets – whether fixed, convertible, or liquid – to honour obligations or debts. Is Nigeria solvent or insolvent? If the country is judged to be insolvent, how many among the ruling politicians, by their conduct, will agree that the country is bankrupt or insolvent?
Now if Nigeria is technically insolvent or actually insolvent; is it cash flow or balance sheet insolvency, or all combined?
In honouring obligations and making her people experience a life worth living, Nigeria’s journey into borrowings started in 1923. The country took her first loan for an investment, a sum of £5.7 million charged at 2.5 percent interest and payable over a period of 20 years, in 1924. The second loan, in 1936, was for the sum of £4.89 million. By the time Britain left governance of the country in 1960, the debt profile had grown to £17 million.
However, post-independence, the Tafawa Balewa administration added a debt of about $300 million through domestic and Paris Club loans; and by the time the military intervened, January 1966, the country’s debt had risen to $317.3 million. But, surprisingly during the period of the civil war, no loan was taken. This was attributed to the ingenuity of Chief Obafemi Awolowo who was in charge of the economy during the period.
According to Late Obadiah Mailafia, Nigeria’s romance with huge debt profile can be traced to the regime of General Obasanjo’s military administration when a $1 billion loan was taken late-70s and in the twilight of the regime. President Shehu Shagari’s government was recorded to have “borrowed massively from the Bretton Woods Institutions and the international capital markets”; thereby ballooning the national debt to $17 billion by the time the regime was thrown overboard in December 1983. Ever since and throughout successive military regimes, Nigeria was already fast-yoked with debts of $36 billion which required $5 billion every year to service as at 1999.
As published by Advocacy International (UK), Advocacy International (AI) was engaged by the Nigerian government in 2000 “to consult on the design and implementation of an ambitious debt-reduction campaign”. In 2005, the Obasanjo administration negotiated a deal with the Paris Club; paying off a whopping $20 billion in exchange for debt forgiveness of $16 billion.
In the words of Late Obadiah Mailafia: “Whilst acting for the Governor of CBN at the time, the lot fell on me to sign the cheque for the first tranche of $7 billion. After signing the cheque, I caught fever and had to go on painkillers. Then as now, $7 billion is not a dog’s breakfast.” However on April 21, 2006, Nigeria made its final buyback payment to the Paris Club creditors to wipe out over 80 percent of its foreign debts to reduce the foreign debt to $2.11 billion but the domestic debt stood at N2.17 trillion at the end of Obasanjo’s government in 2007.
One would have thought that Nigeria and the governing political class must have learnt a great lesson about how not to burden a developing and an import-dependent economy with insurmountable debts. Within a space of eight years of the Yar’Adua-Jonathan government, however, the borrowings had mounted again with the foreign debt rising to $10.32 billion in June 2015 and the domestic debt at N8.39 trillion. It is reported that the Jonathan presidency increased the debt profile by N2.17 trillion in one year. During the reign of President M. Buhari, the debt profile had been increased to $33.62 billion (external) and N19.24 trillion (domestic) as at December 2021. As things stand today, Nigeria is back to the status of heavily-indebted country with over N95 trillion liability. And what is there to show for this monumental, very rocky and life threatening obligation?
Now, when is it too high or when is public debt good or bad? TheBalance gives an insight in the published piece titled ‘What Is the Public Debt, and When Is It Too High?’ written by Kimberly Amadeo (reviewed and fact-checked by Erika Rasure and Emily Ernsberger). Public debt is the result of years of government leaders spending more than they take in through revenues. In the short run, public debt is a good way to get extra funds to invest in economic development and growth. It is regarded to be much safer than foreign direct investments, where foreign nationals take up stakes and share interests in companies or businesses and engage in capital and profit repatriation.
But public debt becomes bad when government uncontrollably take on too much debt, year after year, and the debt allows government leaders to increase spending anyhow with no concrete action-plan to boost revenue generation, pay off previous debts and at least balance the budget, if it is impossible to spend lesser than income generated. This is where Nigeria finds herself currently: the issue of over-bloated recurrent spending, poor capital expenditure implementation and self-awarding money-votes despite the challenging economic situation and mounting debt profile.
Nigeria, for years, has been facing revenue generation challenge to the extent the federal government has to turn to ‘Ways and Means’, better put, an overdraft from the Central Bank to enable it meets its day to day financial obligations. Likewise, the state governments are borrowing to pay salaries. As at June 2022, the federal government’s ways and means from CBN has reached N20 trillion despite the express provision in the CBN Act that such an overdraft should not exceed 5 percent of the prior year’s revenues; and must be paid off every year before another is granted. This expression provision was not followed by the CBN under the leadership of the former governor, Mr Emefiele.
Are the political leaders frustrating and trampling upon the established code of conduct as set to guide government activities through their business of governance? In a FAQs published by the CBN, when asked if the Federal Government can frustrate the apex bank from pursuing its monetary policy, the response goes thus: “Yes, when the Federal government exceeds its revenue the CBN finance government deficit through Ways and Means Advances subject (in some cases) to the limits set existing regulations, which are sometimes disregarded by the Federal Government”. So, can one conclude that the capacity to flout the Ways and Means provisions by the federal government is the reason there is no sign of seriousness and sacrifice in the yearly recurrent expenditures?
Despite the call for sacrifice to Nigerians by the government in the face of the poor economy, it is yet to be seen that the federal government is ready to be the leader in this show of sacrifice. In the just-passed year 2024 budget, the National Assembly, for instance moved its proposed budget of N197 billion up to over N344 billion. Among other items provided for by the legislators in the year of sacrifice, the breakdown of the self-allocation of fund shows provisions for National Assembly Recreation Centre (N4 Billion), Senate Car Park (N3 Billion), HoRs Car Park (N3 Billion), National Assembly Hospital (N15 Billion), NASS Printing Press (N3 Billion), and several other inanities that ought not to be the issue of concern in a period of national sacrifice. Likewise, an agency of government, FIRS, is reported to have budgeted N11 billion naira for long service awards at a time the country’s debt is mounting geometrically.
With these attitudes of the government, the ruling political class and the government employees, it is right to say that the non-verbal message from the public sector is that they care less about the condition of the country’s economy and whatever situation that the people may be passing through. They, government officials and the employees, are only interested in their today to get as much as they can. The people, millions of Nigerians and the coming set of rulers, would be the ones to worry. They are speaking clearer and louder with their body languages that they only bother about their perks and the largesse the offices they occupy can bring them.
To be candid, this is not how to lead a socio-economic entity that is full of multi-layered and multi-dimensionally poor millions of people. The public sector players (governments and their employees), a tiny fraction that they are, cannot just run the assets of more than 220 million people anyhow. Let’s hope something positively-worthwhile and very decisive happens to return the country to the path of productivity and prosperity before someone, from nowhere, angrily yank off the life support.
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. Emmanuel is a business planning consultant and founder of Leacent Incorporated Trustees, a network of entrepreneurs and group of cooperatives. He works with a team of international consultants to conceptualise and plan agribusiness and housing projects. As a certified trainer authorised to use the International Labour Organisation’s enterprise development modules, he trains entrepreneurs and organises workshops and seminars for potential and practising entrepreneurs as well as business managers and cooperatives. He also speaks and facilitates at leadership and management workshops on invitation. His book, Business Planning Made Easy: Step by Step Guide On How To Turn Your Idea To Profitable Business’ is the latest of the books authored by him. Telephone: +234(0)9068602954 (call and sms), +234(0)8023257707 (WhatsApp only).
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