Exploring paths to restore fiscal capacity in Nigeria & Ghana

The World Bank has recently sounded the alarm, predicting a substantial increase in debt-servicing costs for the 24 poorest countries by up to 39% in the years 2023 and 2024. This comes at a time when interest payments for these nations have skyrocketed to an all-time high in 2022. To delve into the precarious fiscal situations of Ghana and Nigeria, CNBC Africa hosted a panel comprising John Gatsi, the Dean at the University of Cape Coast School of Business, and Paul Alaje, a Senior Economist at SPM Professionals. The discussion shed light on the challenging economic landscapes these two West African nations are navigating, grappling with excessive debt burdens and dwindling fiscal capacity. Starting with Ghana, the conversation touched on the country's recent inflation drop to 26.4%, signaling some positive economic movement. However, the underlying issues of high debt remain a significant concern. Ghana has resorted to domestic debt exchange programs, but the burden remains unsustainable. Financial struggles persist, with external debt restructuring awaiting approval to unlock crucial IMF funding. The Ghanaian fiscal indicators continue to paint a grim picture, requiring urgent remedial actions. Shifting the focus to Nigeria, the narrative on debt management paints an equally grim picture. The staggering revelation that the country is allocating a staggering 98% of its federal revenue towards servicing debt paints a dire reality. The government's meager 2% remains insufficient for essential expenditure, severely limiting developmental initiatives. Even with currency devaluation and subsidy removal attempts, Nigeria faces a daunting debt exposure of 78 trillion Naira, necessitating urgent and strategic interventions. The overarching theme of the discussion pointed towards the urgent need for reform and responsible governance in managing the fiscal affairs of these nations. One of the critical points raised during the dialogue was the internal mismanagement of resources in both Ghana and Nigeria. Prof. Gatsi eloquently highlighted the need for better management of mineral resources, corporate taxes, and public finances to avert fiscal crises. He emphasized the detrimental impact of mismanaged exemptions and the lack of economic vision in driving sustainable development. Paul Alaje reinforced this sentiment by drawing parallels with countries like the United Arab Emirates, underscoring the importance of visionary leadership and economic resilience in weathering external shocks. The conversation also touched on the role of the global financial architecture and debt forgiveness initiatives. Prof. Gatsi cautioned against over-reliance on debt relief, emphasizing the importance of internal reforms and governance to ensure long-term fiscal stability. Paul Alaje echoed these sentiments, citing Nigeria's precarious debt-to-revenue ratio and the urgent need for revenue diversification and anti-corruption measures. The panelists concurred on the critical need for African nations to take greater responsibility for their economic management and adopt sustainable practices to navigate the current debt crises. The engaging discussion ended on a somber note, highlighting the urgency for decisive actions to avert further economic deterioration. While the challenges loom large, the call for responsible governance, visionary leadership, and strategic economic reforms emerges as the beacon of hope amidst the storm of financial uncertainty.