President Muhammadu Buhari and Minister of Finance, Mrs Zainab Ahmed

BY EMEKA EJERE

Nigeria’s debt profile is expected to be in the neighborhood of N50 trillion if the current attempt by the federal government to obtain more loans turns out to be successful.

President Muhammadu Buhari had in a letter dated August 24, 2021, sought the approval of the National Assembly to borrow $4.2 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”.

“The projects listed in the addendum to the 2018-2021 Federal Government External Borrowing Plan, are to be financed through sovereign loans from the World Bank, French Development Agency (AFD), China-Exim Bank, International Fund For Agriculture Development (IFAD), Credit Suisse Group and Standard Chartered/China Export and Credit (SINOSURE) in the total sum of USD4 illion plus Euro 710 million grant component of USD 125 million”.

The Upper Legislative Chamber had in July approved a $6.1 billion (N2.3 trillion) loan request by the federal government to fund the 2021 Appropriations Act. The Red Chamber had said the loan would be financed through multilateral and bilateral firms, adding that the Senate approved the borrowing of the sum of N4.6 trillion in the 2021 Appropriation Act and that the new borrowing of N2.3 trillion would part-finance the deficit in the 2021 budget.

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 per cent (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, an company of accounting professionals, 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.

Two weeks ago, 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 has been public outcry against President Buhari’s request for fresh loans. Chairman of PEAC Dr. Doyin Salami believes 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 has queried.

Also, former President Olusegun Obasanjo, had expressed concerns about the repayment of “these questionable loans,” descry ing borrowing for consumption as “criminal.”

He asked, “If you are borrowing and accumulating debts for the next generation and the next generation after them… what are you borrowing for?”

“If we are borrowing for recurrent expenditure, it is the height of folly. If we are borrowing for development that can pay for itself, that is understandable. And how long will it take to pay itself?”

On its part, Socio-Economic Rights and Accountability Project, SERAP, has urged the leadership of the National Assembly to reject the fresh request by President to borrow $4 billion and €710 million until the publication of details of spending of all loans obtained since May 29, 2015, by the government.

In an open letter dated September 18, 2021, by SERAP Deputy Director, Kolawole Oluwadare, addressed to Senate President, Dr. Ahmad Lawan, and Speaker of House of Representatives, Mr. Femi Gbajabiamila, the organization expressed concerns about the growing debt crisis, the lack of transparency and accountability in the spending of loans that have been obtained, and the perceived unwillingness or inability of the National Assembly, NASS, to vigorously exercise its constitutional duties to check the apparently “indiscriminate” borrowing by the government.

SERAP said: “The National Assembly should not allow the government to accumulate unsustainable levels of debt, and use the country’s scarce resources for staggering and crippling debt service payments rather than for improved access of poor and vulnerable Nigerians to basic public services and human rights.

“Accumulation of excessive debts and unsustainable debt-servicing are inconsistent with the government’s international obligations to use the country’s maximum available resources to achieve progressively the realisation of economic and social rights, and access of Nigerians to basic public services.”

Similarly, the Peoples’ Democratic Party (PDP), has cautioned the NASS against approving the fresh loan request, saying it could set the country’s debt profile skyrocketing without a feasible repayment plan.

“More alarming is that the debts that APC is hanging on Nigerians are for nebulous projects whose scopes, utilities, locations and contractors are largely vague; a development that validates apprehensions of a huge swindle on our nation at the expense of innocent Nigerians, including generation yet unborn”, PDP alleged.

But responding to the PDP’s criticism, the All Progressives Congress (APC) said the loans are for “the good of the country” and well-being of the citizenry. The ruling party also accused the opposition party of looting foreign loans obtained during its 16 years rule rather than spending on infrastructure and economic growth as, according to it, Buhari-led government is doing.