Making sense of Nigeria's debt strategy

Nigeria's debt management strategy has come under scrutiny following data that shows the country borrowed a staggering ₦‎6.3 trillion from the Central Bank of Nigeria through Ways and Means Advances between January and October this year. The CEO of Kairos Capital, Sam Chidoka, shed light on the concerning trend during a recent interview with CNBC Africa. Chidoka emphasized the need for the Nigerian government to reevaluate its borrowing practices to ensure sustainable debt management. He pointed out that the current borrowing levels are far above the recommended threshold set by the CBN Act, posing risks to the economy. The reliance on CBN borrowing not only raises concerns about inflation but also highlights the urgent need for alternative revenue generation strategies. The rising consumer loans in Nigerian banks added another layer of complexity to the country's economic landscape, with a 31% increase recorded, reaching ₦‎2.55 trillion in July 2022. Chidoka attributed this surge to inflation-driven financial pressures on households, forcing them to seek external funding to bridge the gap between expenses and earnings. While the increase in consumer borrowing is not unexpected given the high inflation rates, Chidoka advised banks to closely monitor their non-performing loans to mitigate associated risks. On the international front, Moody's downgrade of Ghana's long-term issuer ratings to Ca with a stable outlook sent shockwaves through the West African market. Chidoka expressed concerns over Ghana's financial stability following the country's announcement of a potential debt restructuring plan that could see bondholders facing a 30% reduction in principle. Drawing parallels with Nigeria, Chidoka highlighted the importance of learning from Ghana's situation to avoid a similar fate. He emphasized the need for Nigeria to focus on sustainable debt financing, increase revenue through taxation, and reduce reliance on borrowing to fund current expenditures. Chidoka's insights underscored the significance of macroeconomic stability and prudent fiscal policies in navigating the challenges posed by increasing debt levels and volatile global markets. As Nigeria and other African economies grapple with mounting debt pressures and external vulnerabilities, strategic financial planning and proactive measures are essential to safeguard against potential economic downturns. The IMF's involvement in Ghana's financial restructuring further emphasizes the stringent conditions attached to international financial support, highlighting the imperative for countries to adhere to prescribed guidelines to secure much-needed funding. In conclusion, the interview with Sam Chidoka brought to the forefront critical issues surrounding Nigeria's debt management, consumer borrowing trends, and international financial developments. As Nigeria charts its economic course amidst complex global dynamics, Chidoka's recommendations serve as a timely reminder for policymakers to adopt sustainable debt strategies, enhance revenue generation, and proactively address emerging financial risks.