Tougher times ahead as rising subsidy weakens FG, states’ revenue
President Muhammadu Buhari and Minister of Finance, Mrs Zainab Ahmed


The dangerously mounting debt profile of Nigeria is more than ever before raising doubts about the federal government’s ability to achieve the much desired economic recovery. It is even more so with the recent claim by the Edo State governor, Godwin Obaseki, that the country printed N60bn to augment what the three tiers of government shared in March.

Obaseki also expressed worry over the country’s increased borrowing, saying it was wrong to continue borrowing without a tangible plan for debt repayment.

Statistics obtained from the DMO showed that the country borrowed N5.52 trillion in 2020. As of December 2019, the country’s debt portfolio stood at N27.4tn. However, Nigeria’s total public debt rose to N32.9tn at the end of December 2020, according to a statement released by the DMO in March.

Findings show that the nation’s external debt is the biggest in sub-Saharan Africa and has already been rescheduled several times. Despite the rescheduling and refinancing by creditors who were either members of the Paris Club (governments), London Club (banks) or independent creditors, arrears of this debt kept accumulating over time.

Available records show that Nigeria’s external debt remained low until the middle of the 1970s. It was $1.5 billion in 1970 and $2.5 billion in 1975. But the situation began to get out of control around 1977 when an outstanding growth rate in the country’s debt became manifest. By 1979 the outstanding debt had reached $7.5 billion and $8.9 billion by 1980.

This was due to excess borrowing from international agencies and countries at non-concessional interest rate as a result of the decline in oil earnings, and the emergence of high trade arrears due to inability of the country to either produce or pay for its imports.

By 2005, the nation’s debt ballooned to about $30 billion, with bulk of it coming from the Paris Club of creditors. Nigeria and the creditors’ club then went into series of negotiations on a mutually acceptable relief on the $30 billion debt with the Paris Club.

In October 2005, Nigeria and the Paris Club reached a final agreement for debt relief worth $18 billion. The creditors had cancelled $18 billion most of which was registered and Nigeria repaid $12 billion.

Most of the $18 billion was registered as aid. The deal was completed in April 2006, when the Obasanjo=led federal government made its final payment and the nation’s books were cleared of any Paris Club debt.

But the relief turned out to be temporary as, by June 2015, Nigeria’s debt had again jumped to $63.8 billion, representing the country’s highest debt profile since independence.

“Nigeria’s total public debt as of December 31, 2020 was N32.92tn. The figures include the debt stock of the federal and state governments, as well as the Federal Capital Territory,” it stated.

It said that after Nigeria exited recession in 2017, the level of new borrowing at the federal level as shown in the annual Appropriation Acts, had been declining to moderate the rate of growth in the public debt stock in order to ensure debt sustainability.

The DMO stated that new borrowing to part-finance budget deficits had declined steadily from N2.36tn in 2017 to N2.01tn in 2018, N1.61tn in 2019 and N1.59tn in the first 2020 Appropriation Act.

This trend was reversed in 2020 due to the economic and social impact of the COVID-19 pandemic as new borrowing in the revised 2020 Appropriation Act was N4.2tn.

The DMO stated, “It should be noted though, that apart from the new domestic borrowing of N2.3tn, the other new borrowings were concessional loans from the International Monetary Fund ($3.34bn) and other multilateral and bilateral lenders.

“This incremental borrowing to part-finance the 2020 budget and the additional issuance of promissory notes to settle some arrears of the federal government of Nigeria, contributed to the increase in public debt stock.

“New domestic borrowings by state governments also contributed to the growth in the public debt stock.”

The minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, while defending the 2021 budget proposals at the sitting of the Senate Committee on Local and Foreign Loans, revealed that Nigeria’s public debt would hit N38tn by December 2021.

In her presentation, Ahmed said the total public debt stock comprising the external and home debts of the federal and state governments as well as the Federal Capital Territory stood at N31.01 trillion ($85.90 billion) as of June 30.

“It is projected, based on existing approval, to rise to N32.51tn by December 31, 2020 and N38.68tn by December 31, 2021,” she disclosed.

Some Nigerians have continued to raise concerns that the country’s dependence on debt to fund annual budgets had become alarming. There are fears that the nature of the loan agreements, particularly with China, was capable of compromising the country’s sovereignty. In recent times the country has consistently looked towards China for loans to bridge huge infrastructure deficits.

In May 2020, the House of Representatives mandated some of its committees to investigate all China-Nigeria loan agreements, to ascertain the viability of the facilities, then regularise and renegotiate them when necessary.

Of particular interest was a sovereign guarantee clause in the agreements. The consensus concern was that the clause could see Nigeria sign away its sovereignty in the event of a payment default.

However, Minister of Transportation, Rotimi Amaechi, explained that the purpose of the clause was to allow China pursue paths, including arbitration, to settle possible disputes over payments.

“They are saying; if you are not able to pay, do not stop us from taking back those items that will help us recover our funds. And it is a standard clause, whether it’s with America you signed it or with Britain or any country, because they want to know that they can recover their money,’’ Mr. Amaechi said.

According to the DMO, as at March 2020, the total borrowing by Nigeria from China was $3.121 billion, accounting for 11.2 per cent of the external debt stock of $27.67 billion

An economist, Tope Fasua, advised the federal government to improve on the budgeting system to check deficit financing and make the annual budgets more impactful.

Fasua cautioned that though borrowing had become imperative due to prevailing circumstances, especially with the advent of COVID-19, such borrowings should be judiciously utilised to improve infrastructure that can grow the economy.

“Unfortunately, we have found ourselves in a difficult scenario due to the COVID-19 pandemic and collapse of crude oil prices and we just have to go borrowing like most other countries in the world. Government should ensure that our borrowings are effectively utilised for optimum economic impact,’’ he said.

Laoye Jaiyeola, Chief Executive Officer of the National Economic Summit Group (NESG), said that, though Nigeria’s debt to GDP ratio could be considered low, the revenue that went into debt servicing was still on the high side.

Mr. Jaiyeola opined that expending 25 per cent to 30 per cent of national revenue on debt servicing, as presently done by the Nigerian government, was not sustainable. He urged the federal government to adopt tough but necessary policy choices in order to improve on its revenue and reduce its dependence on foreign and local loans to fund budget deficit.

“We should all be worried about the rising debt profile of the country. Some people say that the debt to GDP ratio is still low. It could be low, but servicing debt is still a challenge,” he said.

He suggested a drastic cut in running cost of governance, reduction in recurrent expenditure, as well as removal of subsidies in electricity and petroleum products, as a way of reducing the debt burden.

Governor Obaseki had maintained that Nigeria is in huge financial trouble and that the federal government, owing to non-availability of funds, was forced to print N60 billion as part of federal allocation for the month of March 2021.

“By the end of this year, our total borrowing is going to be within N15-N16 trillion. Imagine a family that is just borrowing without any means to pay back and nobody is looking at that, everybody is looking at 2023, everybody is blaming Mr. President as if he is a magician”, Obaseki lamented.

However, the DMO has disclosed that the total public debt to the Gross Domestic Product was 21.61 per cent, adding that it was within Nigeria’s new limit of 40 per cent.


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