| By Babatunde Akin-Moses
Sri Lanka is going through a crisis, with a virtually collapsed economy. The country cannot repay its debt, schools have shut down indefinitely due to a lack of paper, and critical shortages of essentials (like food & fuel) have become the norm.
The turmoil got worse last weekend, when protesters trooped into the Presidential palace, forcing the President into hiding, and eventually offering to resign.
The 3 main triggers that led to all of these have also affected Nigeria, and most developing countries: the 2020 pandemic, the rising cost of borrowing globally, and the Russain-Ukraine war.
Some have said that Nigeria will be like Sri Lanka in a few months due to these factors. That’s highly unlikely in my opinion. This is not just out of optimism or patriotism (2 attributes I gladly own with my full chest by the way), but because of factual & structural differences between both countries:
1. Nigeria has a more steady source of foreign exchange (FX). Sri Lanka relies majorly on tourism for FX, and this was grounded to a halt thanks to Covid. I understand that having one major source of FX is not ideal but it’s not likely to come to a sudden halt as tourism did for Sri Lanka, since it’s an essential commodity.
2. Sri Lanka reduced its taxes significantly in late 2019, in a populist move to fulfill a campaign promise. This led to significant government revenue loss, just before the pandemic. Nigeria didn’t just increase its taxes in 2022 (we can debate the appropriateness of this later), it also earns FX from these taxes too.
3. Nigeria has more local than foreign debt (less than 40% of Nigeria’s debt is external). Sri Lanka is in trouble not just because its debt is high, but also because it’s mostly in USD.
4. While controlling free trade, Nigeria didn’t outrightly ban things (like Sri Lanka did with fertilizer). The CBN instead stopped providing FX to import certain things, causing their prices to go up. So while this caused inflation in Nigeria, an outright ban in Sri Lanka led to a total lack there.
5. The President’s power in Nigeria is still limited. In Sri Lanka however, constitutional amendments granted the President so much power, he started running the country like a family business (his brothers held important positions like minister of finance, Prime minister, etc). There’s nepotism in Nigeria no doubt but we still dey learn work abeg.
That said there are some disturbing similarities like import dependence, restrictions on free trade, limited sources of FX revenue, and external debt. While the differences are sufficient enough to ensure we do not go down the same path in the near future, it should also be a cautionary tale to our leaders of how bad things can get, if the economy isn’t managed properly.