President Buhari’s letter to the Senate for approval to raise a fresh $4.2 billion, and $700 million Euro bond external loan has again reopened the debate on Nigeria’s debt stock and the looming debt trap. Before the current request, which allegedly was part of the 2018-2021 Medium Term borrowing plan, the country debt stood at N33 trillion ($88 billion at N380 per dollar).
Under this government the debt profile rose from N12 trillion in 2014 to the present level, raising the question of its deployment, utility, and impact on the economy and the people. Indeed, while the debt is rising, the lives of Nigerians and the state of the economy have been on a downward spiral, further compounding the rationale for the ballooning debt.
Official explanation for the necessity of the loans and continued borrowing is that the economy and country lack adequate infrastructure without which the dream of economic development and improved standard of living will be dashed. So the borrowings are targeted at building roads, rail, bridges, power etc.
Mr. Babatunde Fashola, minister of works and housing, is at the fore-front of this campaign for more debt, and finds a willing and pliant disciple in the minister of finance, Mrs. Zanaib Ahmed. In a recent presentation at the Hallmark Town Hall forum, he asked the rhetorical question: If not loan, what else?
It is a question that silences even the most avid and vocal critics of the loans; but it does not address the concern of how the loan or debt will be repaid. According to him, the loans are necessary if we must build the infrastructure we so desperately need, as the situation will deteriorate further leaving us worse off. By doing it, the infrastructure will catalyse economic activities, leading to more productivity and growth.
Another self-serving reason is the political jibe that the previous governments with stupendous resources available to them failed to develop the decaying infrastructure, and even used our scarce resources to pay off $12 billion for a debt relief of $18 billion, which to him was foolishness.
However, the icing to the argument is provided by Mrs. Ahmed and the Debt Management Office, DMO. They both believe that Nigeria is under-borrowed, using GDP to debt ratio, which put the nation’s capacity to borrow at about 48 percent when the current ratio is just about 25 percent. But critics believed that this is disingenuous and spurious, because ultimately it is not the GDP that will pay the loan but actual revenue. At present debt to revenue ratio is over 100 percent.
For instance, over N5 trillion or half of the 2021 budget is deficit to be financed through debt, while 91 percent of the revenue is consumed by debt service alone; so most of the loans being contracted will not go into building infrastructure, as mere nine percent of the revenue cannot fund other recurrent expenditure, which casts doubt on the reason for the borrowing.
Borrowing for consumption is a debt sentence, because it is money down the drain. Secondly, the infrastructure being built though economic in nature, have low revenue potential and may not be able to repay the debts fast enough to free the country from its burden.
Third, most of the projects being executed with the debt could also be financed and funded by the private sector without compelling government involvement and plunging the country into debt peonage. Also, some of the debt, like Euro bond have high interest rate, which can easily compound in case of default, especially given the uncertainty in the oil market.
Whereas, the reason for the borrowing may sound logical and rational, its validity is vitiate by policy inconsistency and even dishonesty of this government, which has not given Nigeria the full benefit to explore all the funding options available to the country.
President Buhari, by nature and political orientation, is a command and control leader, who believes in big government and has a pathological distrust for the private sector, which he accuses of greed and corruption. But the world is moving in a different direction, especially given the dwindling revenue of government and the changing fortune of oil.
Again, the continuing funding of oil subsidy has become the country greatest albatross, which at present, has no immediate solution. As a populist political and religious leader, Buhari found himselfin the horn of a dilemma between pleasing his political and religious constituencies and taking the hard headed economic decision that will liberate the economy.
As expected of such a leader with irreconcilable contradictions, he voted with his feet. Even though he campaign on the basis of scrapping the “corrupt subsidy regime”, he not only sustained it, but grew it from N400 billion in 2015 to N1.2 trillion in 2021per year.
This is the real reason for the borrowing and collapse of the naira, as half of the country oil revenue goes into importation of products, particularly PMS. With half of the forex earned by the country channeled toward providing fuel at cheap rate to his political and religious base, there is little left to fund the import dependency tastes of the country.
To worsen matter, domestic consumption of fuel has quadrupled from just 42 million litres per to 102 million litres, with over half smuggled to neighbouring countries including Niger republic, his original country. It is uncertain how the infrastructure being built will resolve the economic tsunami that is facing the country, and still be able to repay the debt used to provide them.
Not addressing the issue of repayment in concrete terms is criminal and a disservice to future generation.