If the federal government’s current attempt to obtain more loans is successful, Nigeria’s debt profile is expected to be in the neighborhood of N50 trillion.
President Muhammadu Buhari requested National Assembly approval to borrow $4.2 billion and €710 million for “emerging needs” in a letter dated August 24, 2021.
Buhari explained in the letter titled Addendum to Request for Senate Concurrent Approval of Multilateral Fund Projects Under the 2018-2021 Federal Government External Borrowing (Rolling) Plan that there is a need to raise more funds for some “critical projects” due to “emerging needs.”
“The projects listed in the addendum to the 2018-2021 Federal Government External Borrowing Plan will be funded by 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) totaling USD4 billion plus Euro 710 million
In July, the Upper Legislative Chamber approved the federal government’s request for a $6.1 billion (N2.3 trillion) loan to fund the 2021 Appropriations Act. The Red Chamber had stated that the loan would be financed through multilateral and bilateral firms, and that the Senate had approved an N4.6 trillion borrowing in the 2021 Appropriation Act, and that the new N2.3 trillion borrowing would help to finance the deficit in the 2021 budget.
Nigeria received its first foreign loan in 1964, for approximately $13 million, to fund the construction of the Kainji dam. Today, the country is mired in a debt crisis, with debt servicing accounting for 97% of total revenue in 2020.
Dr. Doyin Salami, chairman of President Muhammadu Buhari’s Economic Advisory Council (EAC), recently revealed that the country’s debt service-to-revenue ratio was 97.7 percent (January to May 2021).
According to the findings, the federal government collected N3.42 trillion in revenues in 2020 and spent N3.34 trillion to service her obligations. In effect, the FG’s other expenditures were all financed by borrowings.
A recent report by PwC Nigeria, an accounting firm, the rising cost of debt servicing continues to weigh on the federal government’s revenue profile.
It stated, “Actual debt servicing costs in 2020 stood at N3.27tn, representing approximately 10% more than the budgeted amount of N2.95tn.” This puts the debt-to-revenue ratio at around 83%, nearly double the budgeted figure of 46%.
“This means that approximately N83 out of every N100 earned by the federal government was used to settle interest payments on outstanding domestic and foreign debts during the reference period.”
It went on to say that the FG planned to spend N3.32 trillion in 2021 to service its outstanding debt. This is more than the N2.95 trillion budgeted for 2020.
The Debt Management Office (DMO) announced two weeks ago that Nigeria’s total public debt, which includes state and federal government debt obligations, increased by 7.75 percent from N32.916 trillion in December 2020 to N35.465 trillion in June this year.
According to the most recent DMO data, Nigeria spent N445.4 billion on debt servicing payments in the second quarter of this year. Nigeria spent N322.7 billion on domestic debt servicing from April to June 2021, while $299 million (N122.7 billion) was spent on external debt servicing.
For external debt servicing, the Central Bank of Nigeria’s exchange rate ($1 = N410.3) as of September 30 was used. Nigeria spent N258 billion on domestic debt in April, N42.4 billion in May, and N22.3 billion in June.
According to the statistics, the federal government spent a total of N322.7 billion on interest payments, with N50.3 billion spent on the redemption of matured Nigeria Treasury Bills between April and June 2021.
Commercial loans accounted for 53% of external debt servicing at a cost of $157,012.17, multilaterals accounted for 35% at a cost of $103,732.70, and bilaterals accounted for 13% at a cost of $38,220.88.
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The total external debt stock increased from N12.47tn on March 31 to N13.71tn on June 30, representing a 9.94% increase. The total domestic debt stock increased by N1.11 trillion (5.38 percent) from N20.64 trillion on March 31 to N21.75 trillion on June 30.
External debt stock accounted for 38.66% of total public debt stock at the end of Q2 2021, while domestic debt stock accounted for 61.34 percent. The debt-to-GDP ratio increased from 21.13 percent to 21.92 percent in the second quarter.
A breakdown of Nigeria’s external debt stock at the end of the second quarter revealed that multilateral debt (from the World Bank Group and the African Development Group) led the list of creditors with a share of 54.88 percent.
Commercial debt (from Eurobonds and Diaspora Bonds) came in second with 31.88 percent. With a share of 12.70%, it was followed by bilateral debts (from China, France, Japan, India, and Germany). Promissory Notes accounted for 0.54 percent of the total.
Debt Profile: Borrowing that is unsustainable
The public has reacted predictably to President Buhari’s request for new loans. Dr. Doyin Salami, Chairman of PEAC, believes Nigeria’s current public debt stock is unsustainable, despite the country’s debt-to-GDP ratio of 35% appearing comfortable. He added that it is even more so with a debt service-to-revenue ratio of 97.7 percent (January to May 2021).
Salami stated in a presentation titled “The State of the Economy” that the country’s debt stock is estimated to be around N54 trillion when Ways and Means, Asset Management Corporation of Nigeria (AMCON) liabilities, and the projected fiscal deficit for 2021 are taken into account.
To increase revenue, the economist stated that the government must stop leaks, unlock opportunities at the state level, improve tax efficiency and coverage, and sell off dead assets worth $900 billion.
In an interview with a national daily, another member of PEAC, Mr. Bismarck Rewane, said that every Nigerian should be concerned because the FG is taking a risk with the borrowing. He warned against reckless borrowing, emphasizing that if continuous borrowing is not accompanied by an increase in government revenue, the country will be forced to face a “fiscal cliff.”
“The increase in the level of debt is cause for concern because debts are liabilities. You must also concentrate on the assets. What are the assets being purchased? Rewane has asked, “How much of it is for consumption and how much is for Gross Capital Formation?
Also, former President Olusegun Obasanjo expressed concern about the repayment of “these questionable loans,” calling consumer borrowing “criminal.”
“If you’re borrowing and accumulating debts for the next generation and the generation after them… what are you borrowing for?” he asked.
“It is the height of folly to borrow for recurrent expenditure. It’s understandable to borrow for development that will pay for itself. And how long will it take for it to pay for itself?”
The Socio-Economic Rights and Accountability Project, for its part, has urged the National Assembly leadership to reject the President’s new request to borrow $4 billion and €710 million until the government publishes details of all loans obtained since May 29, 2015.
In an open letter dated September 18, 2021, addressed to Senate President, Dr. Ahmad Lawan, and Speaker of the House of Representatives, Mr. Femi Gbajabiamila, SERAP Deputy Director, Kolawole Oluwadare, the organization expressed concerns about the growing debt crisis, the lack of transparency and accountability in the spending of loans obtained, and the perceived unwillingness or inability
“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 improving access of poor and vulnerable Nigerians to basic public services and human rights,” SERAP stated.
“Excessive debt accumulation and unsustainable debt servicing are incompatible with the government’s international obligations to use the country’s maximum available resources to achieve progressively the realization of economic and social rights, as well as access of Nigerians to basic public services.”
Similarly, the Peoples Democratic Party (PDP) has warned the NASS against approving the new loan request, claiming that it would cause the country’s debt profile to skyrocket in the absence of a feasible repayment plan.
“More alarming is that the debts that APC is levying on Nigerians are for nebulous projects whose scopes, utilities, locations, and contractors are largely ambiguous; a development that validates fears of a massive swindle on our nation at the expense of innocent Nigerians, including future generations,” the PDP charged.
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In response to the PDP’s criticism, the All Progressives Congress (APC) stated that the loans are for “the good of the country” and the citizens’ well-being. The ruling party also accused the opposition party of stealing foreign loans obtained during its 16-year reign rather than investing in infrastructure and economic growth, as the Buhari administration is doing.