Zainab Ahmed, Nigerian Minister for Finance


Nobody knows the intention of the All Progressives Congress (APC)-led Federal Government for the borrowing spree and the stupendous budget deficit. It seems not to care about what becomes of Nigeria after its term. Combined public debt was N12.12 trillion by June 30, 2015, about the time the APC took over Federal Government from the Peoples’ Democratic Party.

By December 2019, this debt stock had jumped (by more than N15 trillion) to N27.40 trillion without any multiplier effect (economic dividends) to show for it. Instead, employment, Naira exchange rate, power supply, security and other social and economic indicators have worsened. With the $22.80 billion additional loans recently approved by the legislature, public debts now amount to almostN36 trillion -three times the N12.12 trillion inherited!

The EXIM Bank of China contributed $17.06 billion or more than 75 per cent of the $22.80 new loans. Added to its pre-existing exposure of USD3.10 billion, Nigeria would now owe China $ 20.16 billion or 40 per cent of all foreign currency loans which would now exceed $50.00 billion. Note that the $22.80 bn loans had been turned down by the 8th Senate, led by Dr Bukola Saraki, for doubtful debt service capacity and lopsided distribution. It should not have been lightly approved.

By maintainable revenues, Nigeria is over-borrowed and has crossed the threshold of the debt trap, as would be demonstrated. The economic outlook is very bad. Crude oil and Gross Domestic Product (GDP) are in decline. There is the threat of full-blown recession, accelerated by Covid-19 lockdown. Tax coverage and other sources of revenue remain limited. The ethical track record of the government is also bad.

Additional loans could only be taken for projects with direct multiplier effects and repayment cash-flow. This condition precedent is critical as a general expansion of the economy, through diffused GDP growth, can no longer be counted upon to suck in loans. There is no evidence that previous projects are self-liquidating of the loans or that the new ones would.

For example, the South-East states which, perhaps, move more men, goods and services than the rest of the country combined and are used to commercial tariffs, are, so far, excluded from the railway projects. It implies that most of the projects were allocated by patronage rather than financial sagacity. How, then, would they self-liquidate the loans?

The scenario is worsened by the 2020 National Budget. The Legislature raised what was presented by the Executive from N10.59 trillion to N10.81 trillion. Although the Executive reviewed revenue projections by 39 per cent, from N8.41 trillion to N5.08 trillion (in the aftermath of Covid-19) it lacked the will to curb the bloated N4.49 trillion recurrent expenditure(reversed only N25 billion) thereby allowing the deficit to balloon from N2.20 trillion to N5.20 trillion, to be financed by further borrowing of N4.43 trillion!

The N2.5 trillion provision for Debt Service (what is due and must be paid to creditors) amounts to 50 per cent of the revised revenue estimate of N5.08 trillion which exceeds both the 25 per cent limit set by the Fiscal Responsibility Act and the 22.5 per cent recommended by the World Bank for Debt Service to Revenue Ratio. (Actual debt service amounted to 99 per cent of revenues for the Second Quarter of 2020, going by reports)Nigeria is now like a family that has to borrow even to eat, not to talk of basic schooling or housing, because all earnings have gone to creditors sitting on her neck!

In simple terms, the Debt Trap begins where you cannot meet debt service and other critical recurrent expenditures without borrowing. We have crossed the threshold into that quagmire now. Hyper-inflation, devaluation and other upheavals could only be averted by a miraculous rebound in crude oil revenues!

The Minister of Finance begs the question by rationalizing the borrowing spree with her purported 21 per cent Debt to GDP Ratio, relative to the universally acceptable 50 – 55 per cent. She ought to know that GDP-based ratios could only be presumed for dynamic economies, with efficient allocation and domestic capacity to respond promptly to government spending and other measures for driving the economy to a new equilibrium. It is the Debt to Revenue Ratio that applies to inelastic, mono-product and import-dependent economies like ours. Transition is not imminent either. Our rulers are primarily interested in measures for clinging to power. The ones for economic transformations are secondary and half-hearted.

Even more worrisome is the slide into the Chinese peculiar debt trap. Having developed technological cum economic and financial muscle, China is frantically positioning to compete with the United States as the superpower. Currently, her major challenges are (1) territory, for redistribution of its large population and military bases; and (2) natural resources, for its industries. Africa has both in abundance.

To capture Africa, China is doling out infrastructure development loans which it knows full well that most of the countries cannot repay. It does not care much about financial viability or prudence, which is what most African leaders like. But each project must be executed by the Chinese (without much technology transfer) and China, the lender, must repossess the underlying infrastructure upon loan default! Some countries have already fallen into the trap. In the case of Nigeria, China’s EXIM Bank was quick to dole out N17.06 Billion where both the African Development Bank and the World Bank were hesitant!

With the perennial slide in crude oil and the impending recession, how would these countries repay the bloated loans? Africa is unable to withstand the more benevolent Western creditors. How would it deal with deadly China (that does not spare its citizens) in a default? China is about to enslave Africa! The West would be helpless. It is Africa that has to wean itself of laxity and gullibility.  Foreign aid and loans are not designed to accomplish much without the sagacity of the beneficiary!

Nigeria, in particular, is not supposed to be a desperate borrower. It could be prosperous by just producing enough food and processing crude oil into petrochemicals and fuels. Adding functional education and health systems then makes it Eldorado. This can be facilitated by restructuring such that federating units compellingly leverage on repossessed natural resources and comparative advantages to compete and diversify production, to raise the GDP and reposition the economy. But our rulers are not interested.

The government is not even seen to be serious in curbing cost and maximizing revenues from current sources, not to talk of diversification. For instance, the country’s share from joint venture oil revenues could be doubled by clearing the racket in production cost, which must be the highest in the world. It has all been mere talk but no action. It has allowed the genocide of militant herdsmen and bandits against farmers, throughout the country, to fester. Famine looms to complicate the cash-flow situation.

The opaque ‘security’ votes and predatory severance packages of governors and other political office holders, the uncountable personal and special assistants and the obscene remuneration of legislators are still there, just as jamboree travels and conferences, e. t. c. in government live in a world of their own, with the larger part of the national budget spent frivolously on recurrent expenditure!

 In the 2020 Budget, for example, N29.00 billion would be spent to renovate the National Assembly, for over-remunerated legislators to enjoy cosy office suites when there are no drugs and equipment in teaching hospitals!

Let the APC-led government consult Dr John Magufuli (President of Tanzania) and Mr Peter Obi (former governor of Anambra State) on how to tame recurrent expenditure and grow and conserve revenues. It does not require jamboree conferences. Let it halt the borrowing spree which will rupture Nigeria!

  • Chief Emma Nwosu, is a financial expert and former CEO of defunct ACB International Bank Plc.