Watch Your Debt Profile: Okonjo-Iweala Cautions On The Rising Of Debt Servicing
On Monday, Ngozi Okonjo-Iweala, the Director-General of the World Trade Organization (WTO), urged newly elected and re-elected governors to carefully monitor their debt levels and maintain control over expenses, while simultaneously investing in infrastructure, education, and essential healthcare systems.
She emphasized the importance of transparency and prudent utilization of state resources, encouraging the governors to govern their states effectively. Okonjo-Iweala highlighted that good governance, transparency, and efficient management would not only attract private investments but also garner multilateral support for their respective states.
During her address at the 2023 induction ceremony for newly elected and re-elected governors at the State House in Abuja, Ngozi Okonjo-Iweala highlighted that the allocation received by some states through the Federation Account Allocation Committee (FAAC) is larger than the budgets of several African countries.
Okonjo-Iweala advised the governors, stating, “It is crucial to closely monitor your debt profiles and exercise careful control over expenditures, even as you make investments in infrastructure, education, and basic healthcare systems. Please ensure timely payment of salaries to teachers, healthcare workers, retirees’ pensions, and other essential obligations.”
She emphasized the importance of transparency by urging the governors to disclose to their citizens the details of their monthly FAAC allocations, internally generated revenue (IGR) collections, and how these funds are utilized. Okonjo-Iweala recalled the practice of routinely publishing this information during her tenure as finance minister under Presidents Obasanjo and Jonathan, and she encouraged the governors to reinstate this practice for the sake of accountability to their constituents.
Ngozi Okonjo-Iweala pointed out that Nigeria’s debt service to revenue ratio is a matter of concern, standing at 83.2% in 2021 and 96.3% in 2022, as reported by the World Bank. This implies that at the federal level, there is limited fiscal space after debt servicing, making it challenging to cover recurrent expenditures, let alone investments.
Additionally, she noted that tackling the fiscal deficit becomes increasingly challenging due to the substantial oil subsidy bill, which reached N3.36 trillion for the first half of 2023 (or N6.72 trillion if it persists without removal). This burden further worsens the deficit, compounded by revenue losses arising from oil theft.
She emphasized the significance of political consensus in addressing the challenges surrounding this issue, highlighting the need for unity among both government officials and opposition leaders on policies that are crucial for nation-building.
Regarding World Trade, Ngozi Okonjo-Iweala urged the newly appointed governors to strive towards doubling Nigeria’s share of global trade, aiming to increase it from the current 0.33% to 0.66% within the span of a decade.
She highlighted the significant trade costs faced by Nigeria and Africa as a whole, noting that economists at the World Trade Organization estimate Nigerian exports to other African countries incur trade costs equivalent to a 460% tariff, while exports to the rest of the world face trade costs equivalent to a 210% tariff.
The Director-General of the WTO expressed concern concerning indicators of regional disparity, with projections indicating a potential 1.4% contraction in Africa’s export volumes this year, in contrast to the expected 3.3% growth in North America.
She shared that the International Monetary Fund (IMF) predicts Nigeria’s GDP growth to reach 3.2% this year and 3.0% next year. While this growth rate slightly surpasses the global average, it falls short of the projected growth rates for sub-Saharan Africa as a whole, which are estimated at 3.6% for this year and 4.2% for the following year.
According to Ngozi Okonjo-Iweala, the present GDP growth rates, although higher than the extremely low average annual growth rate of 1.2% witnessed between 2015 and 2019 (the five years prior to the pandemic), still fall significantly short of the average of 6.4% experienced in the preceding five-year period from 2010 to 2014.
She noted that in many developing nations, including a substantial portion of Africa, per capita incomes continue to lag behind the levels observed before the pandemic, highlighting the ongoing challenges faced in returning to pre-pandemic trends.
Regarding digitalization, the Director-General of the WTO emphasized the significant role played by digitally-delivered services trade in driving global economic growth. She highlighted that between 2005 and 2022, trade in these services, encompassing various sectors such as streaming games, consulting services, finance, insurance, and internet-enabled tourism services, experienced an average annual growth rate of 8.1%. In comparison, the average annual growth rate for goods trade stood at 5.6%.
“The cumulative value of exports in digitally-delivered services surged to $3.8 trillion in 2022. In 2012, services transmitted through computer networks constituted approximately 8% of the overall global trade in goods and services. However, within a decade, this proportion increased to 12%.
Acknowledging Nigeria’s progress in this realm, she noted that the country’s exports of digitally-delivered services have experienced rapid growth, averaging 23% annually since 2005. In comparison, the continent as a whole achieved an average growth rate of 8%.”
