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Chief Economist at SPM Professionals, Dr Paul Alaje, has said Nigeria’s rising debt burden cannot be explained solely by fresh borrowing, arguing that exchange rate depreciation has significantly inflated the country’s debt profile.
Speaking in an interview on ARISE NEWS on Wednesday, Alaje said while the Minister of Finance was correct that the current administration had not borrowed up to ₦80 trillion in fresh loans, the impact of naira devaluation had substantially increased the country’s debt obligations.
“If you are looking at going to the market fresh to ask for new money, the Federal Government borrowed, but it may not be up to ₦80 trillion. Here is the real fact: we borrow money over the years, and when we borrow in our currency, exchange rate becomes a major factor.”
He explained that external debt is revalued using the prevailing exchange rate, meaning currency depreciation automatically increases the naira value of existing obligations. “Did Nigeria borrow up to that amount? Yes, because we are also adjusting our exchange rates. But if you are speaking nominally, if you are speaking accounting, I will tell you no, we did not borrow up to the money. At the end of the day, it’s not about Nigeria accounting; it’s about Nigeria economics.”
Alaje warned that the country had relied excessively on short-term borrowing and debt refinancing instead of pursuing long-term economic solutions.
“The real conversation for me is using debt to refinance. We have been doing short-term solutions. We fix the problem today, raise new money in the market and find another quick fix. But the long-term real solution is that the naira has always been susceptible to devaluation.”
He stressed that the real concern should not only be the size of Nigeria’s debt but how borrowed funds are utilised. “Debt is not a problem. But I dare tell you that debt is a major concern, especially for a nation that pays high interest rates on debt.”
On the use of borrowed funds, Alaje acknowledged that some loans had financed infrastructure projects, while others had gone towards debt refinancing, recurrent expenditure and inherited liabilities. “I agree that some monies have gone into infrastructure. I agree that not all the money borrowed goes into refinancing. Some borrowings were legacy debt, including the old Ways and Means.”
He explained that governments often resort to refinancing because projected revenues fail to materialise as expected. “Government projected that it would have some revenue, but between the time the budget is passed and when revenue comes, there is a lag. So government goes to the market to raise treasury bills and bonds, hoping that when revenue comes it will repay the money.”
However, Alain questioned Nigeria’s ability to meet its revenue targets. “Can we say that we have ever met our revenue targets over the last 10 or 15 years? The answer is no. More often than not, we return with supplementary budgets. That is a recipe for disaster.”
Commenting on concerns over budget implementation, Alaje said the inability to fully fund capital expenditure reflected persistent revenue shortfalls. “Capital is the most sensitive part of the budget. Contractors have already supplied materials after procurement, only to discover they will receive just 30 per cent of what was expected.”
He urged the Federal Government to provide greater transparency on public finances. “If senators are asking questions about where the revenue is going, it is important to provide answers for Nigerians so people will not be thinking otherwise.”
On monetary policy, Alaje defended the Central Bank of Nigeria’s decision to retain the Monetary Policy Rate at 26.5 per cent, saying the move was necessary to protect foreign reserves, exchange rate stability and inflation. “If we reduce our interest rate, it will affect our reserves. If it affects our reserves, it will affect the exchange rate. If it affects the exchange rate, it will affect prices, and if it affects prices, it will affect inflation.”
He acknowledged that high interest rates were constraining private sector growth. “The real sector is already stifled. That is why reforms should not be limited to one sector. They should cover the entire economy.”
According to Alaje, monetary policy alone cannot deliver sustainable economic growth, calling for stronger fiscal reforms, improved infrastructure, enhanced security and increased productivity.
“The real thing that is missing in all of this is productivity. In spite of all the reforms, in spite of the money and the foreign reserves, if there is no productivity, the economy cannot achieve sustainable growth.”
While backing the Monetary Policy Committee’s decision to leave rates unchanged, he said the country’s broader economic challenges required coordinated action across fiscal, monetary and trade authorities. “I do not disagree with what the Monetary Policy Committee did. It was better to retain rates. But we also need to combat insecurity, prioritise transport and energy, and place greater emphasis on productivity.”
Erizia Rubyjeana
