It’s giving…gbese
Happy New Month!! Welcome to the second quarter of the year, hope you are already smashing your financial goals as we advised at the beginning of the year, also hope your week has been great so far😉.
So, if you are familiar with the Yoruba language, you would probably be conversant with the term gbese but if you are not, it simply means debt. Now you are probably wondering what that has to do with analyst’s digest macro series, but if you are in this Nigerian economy, you know that that is something our government is 100ft deep in.
Just last week Tuesday, the Chinese Export-Import Bank declined the loan of $22.8 billion requested by the Nigerian Federal government. There are reports of the rejection being facilitated by the high level of uncertainty in payment given the economy’s credit record. But of course, this did not stop the government from redirecting to the Chinese development bank to request a loan of almost $974 million. The loan would be “used” to finance the Nigerian Railway Modernisation project, specifically the Kaduna-Kano segment. This is just another pile on the numerous loans the Nigerian government has taken in Buhari’s “bubu” administration. According to a projection by the Debt Management Office of Nigeria, his administration is set to leave a debt of $169.4 billion for the incoming government. Also, the 2023 budget has a budget deficit of about $24.63 billion with debt servicing at $14.34 billion (sighs in where una dey see this money). Debt service is the amount of money used to cover the interest on loans and the principal on loans. But the scenario in the Nigerian economy is that our 2023 budget is financed by loans, so in simpler terms, our government is borrowing money to pay for former loans.
So what?
It is important to note that debt is not a bad concept. Different developed economies in the world borrow and may have higher debt stock than the Nigerian economy, the only issue is to what areas they channel these loans and how credible they seem to their borrowers. Having the China-Exim bank decline the loan for the first time may be one step to the end of Nigeria’s “quick and easy” access to money. It also shows our level of credibility in payment. There are two terms known as recurrent and capital expenditure. Recurrent expenditures are expenses that reoccur, they have benefits that last for a limited period while capital expenditures are mostly investments in fixed assets. It is important to channel most funds from loans into capital expenditures because there is higher certainty on returns from such expenditures to pay back these loans.