President Buhari
Muhammadu Buhari1
President Buhari

…Lagos, C/River, Osun exceed threshold by over 500 percent
There is growing concern over Nigeria’s rising debt stock since the coming of this government with little to show for it. Last week the National Assembly approved another tranche of borrowing of $2.5 billion from the Chinese government to fund capital projects in the 2018 budget. Another loan of $2.8 billion African Development Bank for the Badagry-Lome ECOWAS trans-national route was also announced.
This means that about $5 billion new loans will be added to the debt stock in 2018 taking the nation’s total debt profile to almost $27 billion. Nigeria’s foreign debt stock in 2015 when this government took over was $9 billion. Cumulatively this government would have added $17 billion to the national debt in just three years.
The anxiety of experts derives from the fact that this amount of debt is close to the foreign debt stock of $34 billion in 2003 before the country received debt relief from the Paris Club of creditors after paying a whopping $12 billion.
They argued that given the nation economic and infrastructure challenges, such as import of petroleum products, high exchange and interest rates, high unemployment, poor power supply and bad road network etc, high debt profile will not only create an overhang but simply strangulate the country as the ability to repay may be seriously constrained.
“The future of the economy is mortgage and shortchanged”, says Dr. Boniface Chizea, Chief Executive Officer, BIC- Consultancy Ltd. ”This is inherently creating such situation as inter generation inequity. It impoverishes future generations as income is applied to meeting future debt obligations at the expense of other pressing developmental challenges undermining the development potential of the country.”
The Debt Management Office (DMO) had in September raised some concern over the nation debt stock warning that Nigeria should not borrow more than $6 billion this year; however, the country is already committed to more than $5 billion in 2018. Giving a break-down of the debts, the DMO put the nation’s total debt stock (federal, FCT and states) at N22.38 trillion ($73.21 billion) as at June 30, 2018.
The 2018 Budget is configured with a N1.643 trillion borrowing window for capital projects, comprising N850 billion foreign component and N793 billion to be sourced locally.
Director General of DMO Ms Patience Oniha had said about the nation’s debt burden: “Our borrowing is not excessive. It goes through a rigorous process. If the government did not borrow so much in the last three years, it would not have been able to function. The huge borrowings sprang from the fall in crude oil revenue and the attendant devaluation of the naira.
“Even at that, the DMO does annual debt sustainability analysis. A group of finance and economic experts do this. They project up to 20 years forward. They adjust some variables like if oil price falls, if production crashes and all that. They consider all the ‘what ifs’.
“The overall objective is to ensure that Nigeria’s debt is sustainable, and this debt management strategy has already started yielding results. One of the beneficial outcomes is the rebalancing of the debt stock.
“The ratio of the domestic debt to external debt is inching towards the target of 60:40 and the target of 75:25 between long-term domestic debt and short-term domestic debt. The ratio between domestic and external debt stood at 70:30 compared to 72:28 in December 2017,” she added.
The DMO recently warned that the nation’s high debt-service-to-revenue ratio, which deteriorated in 2016, could trigger a debt crisis.
This was contained in its 2017 Debt Sustainability Analysis (DSA), which pointed out that the country could experience a debt crisis in the event of prolonged shocks (decline) in revenue, exports and naira devaluation.
The DMO had also stated that for the country to stay within its 25 per cent debt-to-Gross Domestic Product (GDP) threshold, the three tiers of government should not borrow more than $6.25 billion in the 2018 fiscal year.
“The Fiscal Sustainability Analysis for the Federation (federal, states and FCT), showed that the ratio of total public debt-to-gross domestic product (GDP), remained below its threshold throughout the projection period. The ratio of total public debt-to-GDP for 2017 was projected at 19.80 per cent.
Also the government had hoped to generated a sizeable portion of its budget deficit from the VAIDS new Tax policy. However, at the expiration of the tax amnesty on June 30, only N30 billion was realised, far from the projected $1 billion, further creating need for debt which marginally increased by 3.01 per cent for December 2017.
The rise in the public debt stock over the six months period was occasioned by the $2.5 billion Eurobond issued in February 2018.
Oniha said: “When compared to the debt data for March 2018, the public debt stock actually decreased by 1.44 per cent from N22.707 trillion in March 2018 to N22.38 trillion in June 2018.
“The decrease was due to a 3.38 per cent decline in FGN’s domestic debt stock between March and June 2018. There were however marginal increases of 0.07 per cent in the external debt stock and 2.75 per cent in the domestic debt of states.
Further disaggregation of Nigeria’s foreign debt showed that $9.67bn of the debt was multilateral; $218.25m was bilateral (AFD) and $5.15bn from the Exim Bank of China credited to the Federal total FGN debt accounted for 74% of Nigeria’s total foreign debt while all States and the Federal Capital Territory (FCT) accounted for the remaining 26%.
Similarly, total FGN debt accounted for 78.66% of Nigeria’s total domestic debt while all States and the Federal Capital Territory (FCT) accounted for the 21.34% balance.
A breakdown of the FGN domestic debt stock by instruments reflected that N7.56trn or 68.41% of the debt are in Federal Government Bonds; N3.28trn or 29.64% are in treasury bills and N215.99 million or 1.95% are in treasury bonds.
However, questions are being raised about the actual utilization of the rising debt burden being accumulated by this government. No major projects have been initiated or completed since taking over power in 2015, yet the debts kept mounting. Observers are worried that though the debts are purportedly being acquired for capital projects, some of have been used for recurrent expenditure especially during the period of recession and oil price glut.
Most of the ongoing projects such as the Second Niger Bridge, Mambilla Power plant, Lagos-Ibadan road etc were inherited by this government. Its own project initiatives such as the Lagos-Ibadan-rail, the Port Harcourt-Maiduguri rail etc have remained on paper.
Observers lament that taking loans to fund recurrent expenditure as this government has done over the past three years is putting the nation’s future in jeopardy as the loans will be paid in the future, which nobody can determine.
Mr. Moses Ojo, Head, Research and Business Development, PanAfrican Capital Holdings believes Nigeria may be repeating the mistakes of the past.
“Debt itself is not bad, but how it is used is the main concern. Debts should be incurred for infrastructure development rather than for consumption. The effects of high debt are that, the proportion of the annual budget and revenue that is being used to service the debt will be increasing as well except there is proportional increase in revenue as well”, he said.
Already the federal government is spending over 38 percent of its budget revenue on debt servicing, which is alarming; yet government continues to look at the debt per GDP ratio, which though still below the 25 percent threshold is inching close to 20 percent. Total recurrent expenditure is about 73 percent, necessitating borrowing to finance capital projects.
The challenge facing this government is that it has made a habit of funding its capital projects from loans because of its mounting recurrent expenditure which takes up all its revenue in the budget. This has posed the problem of effective funding of the projects as some of the loans come late, others don’t come at all leaving the projects in suspension.
As at present the government has not completed any project started or conceived by it.

Debt status of 36 States
Most of the states’ debts exceeded 50 per cent of their annual revenues. The debt profiles of about 18 states exceed their gross and net revenues by more than 200 per cent.
Lagos, Osun and Cross River states record over 480 per cent debt to gross revenue. The Fiscal Responsibility Commission, FRC, stated this in its 2016 Annual Report. FRC said the development was contrary to the guidelines of the Debt Management Office on debt sustainability.
The guidelines said that the debt status of each state should not exceed 50 per cent of the statutory revenue in the previous 12 months.
The report stated, “In the light of the DMO’s guidelines on the Debt Management Framework, specifically, sections 222 to 273 of the Investment and Securities Act, 2007 pertaining to debt sustainability, the debt to income ratio of states should not exceed 50 per cent of the statutory revenue for the preceding 12 months.”
Commenting on the portion of states’ debt, Oniha said they were permitted to apply 40 per cent of their revenue for debt servicing and operating with the remaining 60 percent. An analysis presented in the FRC report, however, showed that most states flouted the directive.
In fact, the debt status of many states exceeded the debt to revenue ratio by more than 100 per cent. The analysis was based on the debt profile of the states as of December 31, 2016.
The states with the highest debt to gross revenue ratios were Lagos (670.42 per cent), Osun (539.25 per cent), Cross River (486.49 per cent), Plateau (342.01 per cent), Oyo (339.56 per cent), Ekiti (339.34 per cent), Ogun (329.47 per cent), Kaduna (297.26 per cent) and Imo (292.82 per cent).
Others were Edo (270.8 per cent), Adamawa (261.96 per cent), Delta (259.63 per cent), Bauchi (250.75 per cent), Nasarawa (250.36 per cent), Kogi (221.92 per cent), Enugu (207.49 per cent), Zamfara (204.91 per cent), and Kano (202.61 per cent).
The debt to net revenue ratio of the states put some of the states in even more precarious situations. The debt to net revenue of Lagos, for instance, is 930.96 per cent, while that of Cross River is 940.64 per cent.
The only states whose debt did not exceed the 50 per cent ratio by more than 100 per cent are Anambra, Borno, Jigawa, Kebbi, Sokoto, Yobe and the Federal Capital Territory. The debt to revenue ratio is very important in debt analysis as it can give an indication of the capacity of the debtor to service and repay the debt.
However, the FRC noted that it should not be concluded that a state had over-borrowed because its debt to revenue ratio was more than 50 per cent.
“It should be noted that the fact that some states exceeded the threshold of 50 per cent of their total revenue is not an indication that they over-borrowed as the debt limits of the governments in the federation are yet to be set.
“Furthermore, only total revenue is used for the foregoing analysis as comprehensive data on the states’ Internally Generated Revenue were not available. In any case, the IGR on the average is not more than eight per cent of the states’ total revenue except for Lagos State. In essence, the non-inclusion of the IGR may not distort the result of the analysis.
“Therefore, there is a need for each of these states to work towards bringing their respective consolidated debts within the 50 per cent threshold of their total revenue in order to guarantee public debt sustainability in the country.”
Lagos Debts: Where did all the money go?
As with the federal government so it is with Lagos state. With a debt profile of about N1.6 trillion, composed of $1.4 billion and N311 billion, Lagos by every indication is on the journey of no return. But more troubling is the value the state and its people have derived from this staggering debt burden.
Experts and residents are worried that future generations of Lagosian are being saddled with a huge responsibility which may imperil their future. The question on the lips of many people is what was he money used for, given the fact that the state has no legacy projects that have been completed.
All the major projects of the Lagos state government since 1999 such as the red and blue rail lines, proposed Fourth Mainland bridge, the BRT road projects, the Independent Power plant, the Badagry and Lekki ports etc. are still in different stages of conception and implementation leaving many people unconvinced of government commitment to them.
At the present level of debt, and with a population of 20 million, every Lagosian owes N80,000. In an economy where youth and graduate unemployment is as high as 36 percent, how this level of indebtedness would be managed to ensure continued growth and development of the state is unimaginable.
Although the state is making an Internally Generated Revenue, IGR, of almost N40 billion per month, the challenge is that unemployment is high and existing businesses and people are being over-taxed and this directly hinders the prospect of creating new businesses to alleviate unemployment.
Lagos State has the highest foreign debt profile among the thirty-six states and the FCT accounting for 37% while Kaduna (6%), Edo (5%), Cross River (4%) and Ogun (3%) followed closely.

Similarly, Lagos State has the highest domestic debt profile among the thirty-six and the FCT accounting for 10.39% while Delta (8.04%), Akwa Ibom (5.18%), FCT (5.09%) and Osun (4.90%) followed in that order.
Dr Muda Yusuf, Director-General, Lagos Chamber of Commerce and Industry
The cost of debt servicing is very high. So, all the resources they are supposed to provide roads, schools, hospitals and take care of the citizens, a huge chunk of that goes to debt serving. Just as they are spending huge money on subsidy, all those things are depriving the common people of more important things.
In the 2018 budget for instance, N2 trillion was earmarked for debt servicing. And we had N2.5 trillion for capital expenditure. You can’t continue to run an economy that way. And you don’t anything to show for the debt.”
Dr. Boniface Chizea, CEO, BIC- Consultancy asserts that rising debt is only bad when it has been acquired not judiciously; not invested in self liquidating Capital projects and particularly when the debt has been consumed or looted.
“The future of the economy is mortgage and shortchanged. This is inherent creating such situation as inter generation inequity. It impoverishes future generations as income is applied to meeting future debt obligations at the expense of other pressing developmental challenges undermining the development potential of the country.”

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