The growing debts could be ruinously expensive to the nation
As Nigeria continues to pile up debts, believing we can borrow our way out of the current mess, the International Monetary Fund (IMF) and other multilateral agencies have also continued to warn of the risk of exposure to these funds that could easily lead to another debt trap. Coming at a period when we have lost the revenue stream to service these debts and still discharge obligations of governance, growth and development, it is even more bewildering that most of these debts being incurred for future generations are expended on projects that bring little or no returns on investment.
More disturbing is that the Finance Minister, Mrs. Kemi Adeosun, who only in July said we could not borrow anymore as “ we just have to generate funds domestically to fund our budget,” is now singing a new tune, perhaps as a result of desperation. “Nigeria’s debt-to-Gross Domestic Product (GDP) ratio is one of the lowest. We are at 19 per cent, but most advanced countries have over 100 per cent. I am not saying we need to move to 100 per cent, but I am saying we need to tolerate a little more debt in the short-term”, Adeosun said last week.
That does not bode well for the future of our country, especially with the debt portfolio growing at double-digit at a period the GDP being used as justification is growing at single digit. The warning by most analysts is that the country may be heading for another debt trap if restraint is not exercised. And there are already signs of that. According to official reports, Nigeria’s debt stock is expected to rise by N6.72tn this year from the 2016 figure of N12.58tn. The total debt liability will also rise to N19.3tn by the end of 2017.
Two weeks ago, President Muhammadu Buhari wrote to the Senate, seeking approval for the following external borrowings: “Issuance of $2.5bn in International Capital Market through Eurobonds or a combination of Eurobonds and Diaspora bonds for the financing of the Federal Government of Nigeria’s 2017 Appropriation Act and capital expenditure projects in the Act. Issuance of Eurobond in the ICM and/or loans syndication by the banks in the sum of $3bn for refinancing of maturing domestic debts obligations of the Federal Government of Nigeria, while looking forward to the timely approval of the National Assembly to enable Nigerians to take advantage of these opportunities for funding.”
As the Senate examines the request, it is important for the lawmakers to remember that in 2005, Nigeria successfully negotiated a complicated debt write-off deal of about $18 billion after a cash payment of approximately $12 billion to free the nation from the Paris Club debts of over $30 billion, most of which were accumulated interests and charges. A chunk of the loans was secured in the 1980s to fund what turned out to be white elephant projects.
With about $3 billion dollars spent annually just on debt servicing at the time, the argument to exit the club was plausible. The idea was that the funds that would be saved from annual debt servicing would be channelled to productive sectors of the economy and to tackle some of the critical sectors that encompassed the Millennium Development Goals. But 12 years down the line, we are engrossed in another national debate on the appropriateness of treading the debt path.
Against the background of what the Director General of the Debt Management Office (DMO), Mrs Patience Oniha told the Senate last week that our country would take between five to 30 years servicing these new loans, even as officials insisted they would take more, the pertinent question is: Should we allow this administration to mortgage our future?