President Buhari

BY EMEKA EJERE

There are concerns that although Nigeria is still within the appropriate debt ratio, more borrowings would put the country in unfavourable conditions, which would jeopardise the future of unborn generations, and possibility of economic recovery.

The fears followed the Senate’s approval of the federal government’s request for $16bn and €1.02bn fresh loans, which will see Nigeria’s current debt stock of N35.5tn rise to N42.7tn.
The $16.2bn loan is equivalent to N6.7tn using the Importers and Exporters’ Window exchange rate of N411.24/$1, while the €1.02bn is equal to N485.5bn using the Central Bank of Nigeria’s exchange rate f N476/ €1. These bring the value of the loans to be acquired to N7.2tn.

The Senate had on Wednesday approved the foreign loan plans of President Muhammadu Buhari, in which he sought to borrow the sum of $16.2bn, €1,02bn and a grant component of $125m to fund some “legacy projects.”

The red chamber’s approval of the loan requests was, however, accompanied by a resolution that the terms and conditions of the loans from the funding agencies be forwarded to the National Assembly prior to their execution for approval and proper documentation.

The approval followed the consideration of a report by the Senate Committee on Local and Foreign Debt on the proposed 2018-2020 External Borrowing (Rolling) Plan.

The Chairman of the committee, Senator Clifford Ordia, in his presentation, said Buhari’s request was in compliance with the provisions of the Debt Management Office (Establishment) Act, 2003 and the Fiscal Responsibility Act, 2007.

Buhari had in a letter dated August 24, 2021, sought the approval of the National Assembly to borrow $4,054,476,863 billion and €710 million on the grounds of “emerging needs.”

In the letter titled Addendum to Request For Senate’s Concurrent Approval Of Multilateral Fund Projects Under the 2018-2021 Federal Government External Borrowing (Rolling) Plan, Buhari explained that owing to “emerging needs”, there is a need to raise more funds for some “critical projects”.

Nigeria took her first foreign loan in 1964 for about $13 million to finance the construction of the Kainji dam. Today, the nation is locked in a debt crisis, spending 97 per cent of her revenues in 2020 on debt servicing.

Only recently, chairman of President Muhammadu Buhari’s Economic Advisory Council (EAC), Dr. Doyin Salami, revealed that the nation’s debt service-to-revenue ratio stood at 97.7 percent (January to May 2021).

Findings revealed that in 2020, the federal government collected N3.42 trillion as revenues and spent N3.34 trillion to service her obligations. In effect, every other expenditure of the FG was done via borrowings.

PwC Nigeria said in a recent report that the increasing cost of servicing debt continued to weigh on the federal government’s revenue profile.

It said, “Actual debt servicing cost in 2020 stood at N3.27tn and represented about 10 per cent over the budgeted amount of N2.95tn. This puts the debt-to-revenue ratio at approximately 83 per cent, nearly double the 46 per cent that was budgeted.

“This implies that about N83 out of every N100 the federal government earned was used to settle interest payments for outstanding domestic and foreign debts within the reference period.”

It added that in 2021, the FG planned to spend N3.32tn to service its outstanding debt. This is higher than the N2.95tn budgeted in 2020.

In September, the Debt Management Office (DMO) disclosed that Nigeria’s total public debt, comprising states and federal government debt obligations, grew by 7.75 per cent, from N32.916 trillion in December 2020 to N35.465 trillion as of June this year.

Latest data from the DMO showed that Nigeria spent N445.4bn on debt servicing payments in the second quarter of this year. From April to June 2021, Nigeria spent N322.7bn on domestic debt servicing, while $299m (N122.7bn) was spent on external debt servicing.

The exchange rate of the Central Bank of Nigeria ($1 is N410.3) as of September 30 was used for the external debt servicing. For domestic debt, Nigeria spent N258bn in April, N42.4bn in May, and N22.3bn in June.

A breakdown of the statistics shows that the federal government spent a total of N322.7bn on the payment of interest, with N50.3bn expended on the redemption of matured Nigeria Treasury Bills between April and June 2021.

For external debt servicing, commercial loans had 53 per cent with a cost of $157,012.17, multilaterals had 35 per cent with a cost of $103,732.70, and bilateral had 13 per cent with a cost of $38,220.88.

The total external debt stock rose from N12.47tn as of March 31 to N13.71tn as of June 30, indicating an increase of N1.24tn or 9.94 per cent. The total domestic debt stock rose from N20.64tn as of March 31 to N21.75tn as of June 30, indicating an increase of N1.11tn or 5.38 per cent.

At the end of Q2 2021, external debt stock made up 38.66 per cent while domestic debt stock made up 61.34 per cent of the total public debt stock. The debt to Gross Domestic Product ratio rose from 21.13 per cent to 21.92 per cent within the second quarter.

At the end of the second quarter, a breakdown of external debt stock showed that multilateral debt (from World Bank Group and African Development Group) led the list of Nigeria’s creditors with a share of 54.88 per cent.

The second highest was commercial debt (from Eurobonds and Diaspora Bonds) with a share of 31.88 per cent. It was followed by bilateral debts (from China, France, Japan, India and Germany) with a share of 12.70 per cent. Promissory Notes had a share of 0.54 per cent.

Unsustainable borrowing

Expectedly, there was public outcry against the President’s request for fresh loans. Chairman of PEAC Dr. Doyin Salami maintained that Nigeria’s current public debt stock is unsustainable even though the country’s debt-to-Gross Domestic Product (GDP) ratio at 35 per cent seems comfortable. He said it is more so with debt service-to-revenue ratio at 97.7 per cent (January to May 2021).

Salami, in a presentation titled, “The State of the Economy,” noted that the country’s debt stock is estimated to hit about N54 trillion when Ways and Means as well as the Asset Management Corporation of Nigeria (AMCON) liabilities and projected fiscal deficit for 2021 are put into consideration.

To improve revenue, therefore, the economist said the government must block leakages, unlock opportunities at state level, improve tax efficiency and coverage, and sell-off dead assets, which are estimated at $900 billion.

Supporting Salami’s position, another member of PEAC, Mr. Bismarck Rewane, in an interview with a national daily, averred that every Nigerian should be concerned because the FG is taking a risk with the borrowing.

He cautioned against reckless borrowing, stressing that continuous borrowing if not complemented with increase in government revenue, will push the country towards a ‘fiscal cliff’.

“The growth in the level of debt is something of concern because the debts are liabilities. You also have to focus on the assets. What are the assets that are being acquired? How much of it is for consumption and how much of it is for Gross Capital Formation”, Rewane had queried.

Experts caution

Reacting to the latest loan approval, the Chief Executive Officer, SD&D Capital Management, Idakolo Gbolade, said although borrowing was not bad, the projects for which the loans were being sought should be able to pay back the debts.

“The government borrowing to fund infrastructure is not bad, but the problem is that the projects should be made to repay the loans. The government needs to look into this. For example, projects like roads should be tolled and proceeds used for repayment as well as railways, etc,” he said.

He added that although the country was still within the appropriate debt ratio, more borrowings would put the country in unfavourable conditions, which would jeopardise the future of unborn generations.

“Presently, Nigeria is still within the debt ratio, according to World Bank standards, but further borrowings with conditions that are not favourable to our sovereignty should be adequately examined in order not to put generations yet unborn in perpetual debt,” he added.

On his part, the Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, urged the government to restructure its debt portfolio.
Teriba said, “Nigeria should aggressively restructure its debt portfolio by replacing interest-paying commercial bonds with interest-free commercial bonds on a wholesale basis to drastically reduce or eliminate the N4.9tn annual average interest payments that are projected in the 2022-2024 MTEF.

“Rather than issue interest-paying bonds to fund infrastructure, we should create special purpose vehicles for packaging infrastructure assets for interest-free financing through asset-linked non-convertible or convertible bonds.

Ideally, this should happen in a rule-based fiscal regime with an independent advisory fiscal commission as a watchdog.”
However, the Deputy Senate President, Ovie Omo-Agege, said the executive arm of government must furnish the National Assembly with details of the loans as well as the terms and conditions.

He said, “The approval we are giving today is to enable the executive to commence negotiations. We have not given approval to the terms and conditions. We have not seen that. I don’t know what that is. We are now saying that the terms and conditions should be brought back to us for approval.”

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