Nigeria joins the World Bank's International Development Association top four debtors as borrowing soars

NIGERIA is now a member of the World Bank's top four International Development Association (IDA) borrowers’ list as increasing debt as a result of the coronavirus pandemic and the ensuing economic fallout has altered the country's lending status.

According to the World Bank fiscal year's 2021 audited financial statements, known as the IDA financial statement, Nigeria was rated fifth on the list with a $11.7bn debt stock as of June 30, 2021. However, the newly released World Bank Fiscal Year 2022 audited financial statements for IDA showed that Nigeria has moved to the fourth position on the list, with $13bn debt stock as of June 30, 2022.

This shows that Nigeria accumulated about $1.3bn IDA debt within a fiscal year, with the country taking over the fourth top debtor position from Vietnam. This debt is different from the outstanding loan of $486m from World Bank’s International Bank for Reconstruction and Development.

Overall, the top five countries on the list slightly reduced their IDA debt stock except Nigeria. India, which is still the first on the list reduced its IDA debt stock from $22bn in the previous fiscal year to $19.7bn, followed by Bangladesh, which cut its debt stock to $18bn from $18.1bn.

Bangladesh is followed by Pakistan which cut its debt to $15.8bn from $16.4bn, while Vietnam, which went down the list to fifth position, cut its debt to $12.9bn from $14.1bn. Nigeria has the highest IDA debt in Africa, as the top three borrowers in India, Bangladesh and Pakistan are from Asia.

Recently, the World Bank disclosed that Nigeria’s debt, which may be considered sustainable for now, is vulnerable and costly. A World Bank spokesman said:  “Nigeria’s debt remains sustainable, albeit vulnerable and costly, especially due to large and growing financing from the Central Bank of Nigeria (CBN).”

However, the World Bank added that the country’s debt was also at risk of becoming unsustainable in the event of macro-fiscal shocks. Furthermore, the bank expressed concerns over Nigeria's cost of debt servicing, which according to it, disrupted public investments and critical service delivery spending.

Taiwo Oyedele, the fiscal policy partner and Africa tax leader of PwC, said: “I agree with the World Bank. Although the debt to GDP ratio is not too high, if you think about the debt service cost to revenue ratio, it is already over 70% and that’s when you know it’s costly.

“Nigeria borrows at double-digit and even when we borrow in dollars, the rates are very high and then you devalue the naira and the cost of servicing the debt in naira goes up because it is dollar-dominated debt. Put all of that together, and you can easily say to yourself that even though our debt to GDP ratio is very low, our cost of borrowing is unsustainable because it is very high and therefore, makes it very costly.”

Kingsley Moghalu, a former CBN deputy governor, also criticised the increasing borrowing tendency of the government, urging the officials to re-consider other ways of generating revenue for the country. He said it was not reasonable to borrow for infrastructural development as the government could expand the public-private partnership options for such schemes.

In a recent document, Patience Oniha,  the Debt Management Office, director-general stated that high debt levels would often lead to high debt services and affect investments in infrastructure. She added:  “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”