What is the $30bn Fresh Loan For? 


President Muhammadu Buhari seeks to increase Nigeria’s total debt portfolio to about $97billion by borrowing about $30billion from external sources to execute critical infrastructure projects. While the argument on the part of government has always been that Nigeria’s debt to GDP ratio remains low, experts are worried that paying back the burgeoning debt is a major concern, as generating enough revenue to meet its budgetary obligations is still a nightmare for the government. Kunle Aderinokun and Bamidele Famoofo report

President Muhammadu Buhari last week returned to the National Assembly to re-present the federal government’s request for a $29.96 billion fresh foreign loan. Buhari, in presenting the external borrowing plan 2016-2018, which had earlier been rejected by the eighth National Assembly, asked the legislature to reconsider and approve the proposal to take the $29.96 billion loan. “Pursuant to Sections 21 and 27 of the Debt Management Office (Establishment Etc.) Act, I hereby request for resolutions of the Senate to approve the Federal Government’s 2016-2018 External Borrowing Plan as well as relevant projects under this plan,” he said.

Reason for Fresh Loan

According to the president, the federal government was seeking the new loan to finance key projects in different sectors of the economy. Specifically, the government decided to borrow such a huge amount of money to enable it execute infrastructure projects across the country. Thirty nine critical projects under execution by the federal government at the moment will be financed with the loan, the president has said.

In his letter titled, “Request for the National Assembly to Reconsider and Approve the Federal Government’s 2016-2018 External Borrowing Plan”, Buhari pointed out that in the plan, which was first presented in 2016, but disapproved by the legislature, were outstanding projects critical to the delivery of the government’s policies and programmes.

“Specifically, the Senate is invited to note that (a): While I have transmitted the 2016-2018 external borrowing plan to the eight National Assembly in September 2016, this plan was not approved in its entirety by the legislature.

“Only the Federal Government’s emergency projects for the North East’s four states projects and one China Assisted Railway Modernization Projects for Lagos-Ibadan segment were approved out of the total of 39 projects.

“(b). That outstanding projects in the plan that were not approved by the legislature are nevertheless, critical to the delivery of the government’s policies and programmes relating to power, mining, roads, agriculture, health, water and educational sectors,” he informed the lawmakers.

Buhari explained, “These outstanding budgets are well-advanced in terms of the preparation, consistent with the 2016 date.

“Sustainability analysis undertaken by the Debt Management Office were approved by the Federal Executive Council in August 2016 under the 2016-2018 external borrowing plan.

“Accordingly, I have attached for your kind consideration, relevant information from the Minister of Finance, the specific outstanding projects under the 2016-2018 external borrowing plan for which legislative approval is currently being sought.”

“I have also directed the Minister to make herself available to provide any additional information or clarification which you may require to facilitate prompt approval of the outstanding projects under this plan,” he further stated.

Burgeoning Debt

If the National Assembly approves the proposal of President Muhammadu Buhari to secure a fresh $30billion loan for Nigeria, the federal government will be increasing the total debt stock  to about $97billion (about N30trillion).

When in 2016, the then lawmakers of the 8th Assembly turned down the loan request, they noted it was not in the best interest of Nigerians for the government to accrue such huge debt.

Figures made available by DMO showed that Nigeria recorded a government debt equivalent to 17.50 per cent of the country’s Gross Domestic Product in 2018. Government Debt to GDP in Nigeria averaged 32.40 percent from 1990 until 2018, reaching an all-time high of 75 per cent in 1991 and a record low of 7.30 per cent in 2008.


Former chairman, Senate committee on local and foreign debt in the 8th Assembly, Senator Shehu Sani, in a statement issued on Friday, said the proposal by the federal government will constitute a perpetual debt trap for Africa’s most populous nation. He recalled the reasons why he and his colleagues at the Senate then turned down the request to borrow such humongous amount of money.

In a statement titled: “Why We Rejected the $30billion Loan Request from the FG”, Sani noted: “We turned down the FG loan request for $30 billion to save Nigeria from sinking into the dark gully of a perpetual debt trap. We don’t want our country to be recolonised by creditor banks.”

He explained: “Our external debt in 2015 was $10.32 billion and it escalated to $22.08 in the second quarter this year, which is 114 per cent.  If we had approved that loan request, our external debt could have catapulted to over $52 billion and that is not sustainable.”

“With the current escalation of borrowing, we will be walking into debt slavery and move from landlords to tenants in our country. They will always tell you that even America is borrowing and I don’t know how rational it is to keep on borrowing because another country is borrowing. If we keep listening to bankers and contractors, we will keep borrowing and burying ourselves and leave behind for our children a legacy of debt burden.  Loans are not charities. Most of those encouraging more borrowing are parasitic consultants, commission agents, rent-seeking fronts and contractors.  We must be cautious,” Sani warned.

Lagos-based economist, Mr. Marcel Okeke, expressed concern that the request by President Buhari was ill-timed.  ‘’It is really a cause for worry that at a time the IMF is warning Nigeria about its burgeoning external debt profile, the FG is pushing to borrow more.’’

According to Okeke, a huge chunk of Nigeria’s annual national budget at the moment is going into debt servicing; with the external debt standing at about $22billion as at June 2019, an additional borrowing of $30billion will bring total external debt to about $52 billion.

‘’Certainly, this quantum of debt will not be sustainable. NEITTI figures show that not more than a total of $21billion had been realised in any year (from 2014–2018) from oil & gas; it beats the imagination how Nigeria will service a $52billion debt, if the $30billion borrowing request gets approved.’’

Okeke expressed worry about Nigeria’s scanty forex inflow from any other source other oil.

His words: ‘’Unless the new ‘Finance Act’ on which the funding of the 2020 budget is predicated contains some “hidden magic”, Nigeria could irreversibly be going into a dangerous debt trap.’’

The economist, who was once chief financial analyst at Zenith Bank, was more worried because he said more loans do not translate into better or more rapid development for Nigeria.

‘’Loan management/administration has always been a serious challenge for the country; so, borrowing additional $30bn at this point in time will rather cripple the economy than boost it,’’ he argued.

Financial consultant, Dr. Boniface Chizea, who told THISDAY there was nothing wrong for any country to borrow if only they do so for the right reasons, said Nigeria’s case is one that is peculiar in the sense that recourse to borrowing has been to subsidise consumption and to pay salaries in the past.

‘’Once you verge into that territory, you are asking for problems as repayment is bound to be problematic. It is even worse when the proceeds from debts are either misapplied or out rightly embezzled. So the view that our current challenge is more of inadequate revenue inflow is to a large extent correct because ideally we should be able to meet our recurrent expenditure from internally generated revenue which is most certainly not the situation now,’’ he said.

Chizea said sustainability challenges arise when a nation had to keep fidelity to repayment of debt with over 50 per cent of its revenue.

‘’As at last measure Nigeria will be committing  more than 50 per cent of its revenue, if it must meet its debt obligations, failing which default follows and the debt situation is compounded leading inexorably to debt  overhang,’’ he alleged.

Chizea added : “This explains why the rash of measures to boost revenues; hike in VAT rate, border closure, sudden levy of N50 on point of sale purchases using your debit card etc. We hope that these measures will be impactful to make a dent on the problem. And that the nation will find greater discipline as it utilises debt inflow to underwrite the amelioration of terrible infrastructure situation, boost productivity, grow job opportunities and ultimately reduce the misery index in the land with its accompanying social tensions.’’

Govt’s Position

Meanwhile, Buhari has said the country’s economy was on a sustained path of growth since exiting recession.

He said one of the positive signs of progress in the economy was Nigeria’s place on the recent ranking on the World Bank’s 2020 Doing Business Index, in which the country moved up 15 places from the 2018 position of 146 to 131.

The president used the opportunity to ask state governments to intensity efforts to instill improved fiscal transparency and accountability in order to ensure optimum use of scarce resources.

Buhari, whose speech was read at the 18th edition of the National Productivity Merit Award investiture ceremony held in Abuja yesterday, by the Secretary to Government of the Federation (SGF), Boss Mustapha, also said that the country’s journey to food security and self-sufficiency was well underway.

“Our economic diversification programmes are yielding positive results. Our ease of doing business policies and programmes are already impacting micro, small and medium enterprises as well as manufacturing, mining and agriculture, among other key sectors. We are now ranked 131 on the World Bank’s 2020 Doing Business Index by moving up 15 places from the 2018 position of 146.

 “We have made outstanding progress in almost all segments of the agriculture value chain; consequently, tens of thousands of jobs in agriculture, logistics, manufacturing and real sectors are being created. We shall sustain these policies to ensure additional investments are channeled, thereby creating more jobs in the sector,” he stated.

He added that the focus of his administration is to consolidate on the achievements made in the last four years “by intensifying efforts on security, restructuring the economy and fighting corruption, correcting the lapses made, tackling emerging challenges facing the country and taking bold steps in transforming our country and setting her on a sound and sustainable path to an enviable height.”

According to him, his administration has since its re-election in March been mapping out new strategies aimed at fostering unity and at the same time liberating the citizens from poverty.

The president also identified the major cause of inequality and insecurity in the country as pervasive corruption.

He urged Nigerians to collectively resolve to fight and expose corruption and the corrupt as by so doing the country can foster a broad-based prosperity required to create a country that is not only for a few privileged, but caters for all Nigerians.

DMO’s Analysis

The Debt Management Office said Nigeria’s external debt position is generally robust in the medium-term, while the impact of the shocks would lead to a deterioration of the revenue-based indicators in the long-term, if adequate measures are not taken to improve revenue and boost exports, as well as shore up the level of other forms of non-debt creating flows, such as foreign direct Investment (FDI). DMO’s annual  stress test showed that over the period 2017–2027, a shock, which combines lower GDP growth, weaker exports, a lower GDP deflator, and a fall in non-debt creating flows would weaken the export and revenue indicators. For instance, the ratio of external debt-to-exports moved upwards from 46.5 percent in 2017 to 188.5 per cent in 2019. ‘’In the same manner, the ratio of external debt-to-revenue increased from 73.4 percent in 2017 to 157.4 per cent in 2022.

The ratios of external debt service-to-exports and external debt-service-to-revenue also deteriorated throughout the projection period. Thus, indicating that Nigeria’s total debt portfolio is highly susceptible to revenue shocks.

There is, therefore the need to sustain the ongoing reforms and initiatives aimed at boosting non-oil revenue by government, which include the broadening of the tax base, increasing tax revenue collection, blocking of leakages, and the diversification of the economy.’’