Five years of unprecedented borrowing by the President Muhammadu Buhari administration does not have the commensurate effect on the economy. There appears to be no plan or strategy on paper by this administration to ensure the elephantine loans contracted from around the world don’t affect the future economic growth capabilities of the country. Nosa James-Igbinadolor reports
Never in the economic history of Nigeria has the country been so intoxicated on debt accumulation. President Muhammadu Buhari has consistently justified the build-up of loans as the only credible route his government has to fund infrastructure projects.
At a meeting with members of the Presidential Economic Advisory Council (PEAC) in September, Mr. Buhari posited, “we have so many challenges with infrastructure. We just have to take loans to do roads, rail and power, so that investors will find us attractive and come here to put their money.”
And that is where the problem is; investors do not find the Nigerian economy under Buhari attractive at all. The last five years has been characterised by gloomy rates of unemployment and inflation, falling GDP and its attendant dwindling per capita income, poor investment in infrastructure, poorer standard of living, financial uncertainties and a general state of economic hopelessness. Simply put, investors hate uncertainty and the Buhari administration’s economic policies have been poor at best, plain miserable at worst and wholesomely pigeon-holed by uncertainties.
While Nigeria’s outstanding loans amount to about a quarter of its economic output, the country, which is Africa’s largest oil producer spends more than half of its revenue servicing debts. The International Monetary Fund has warned that without major revenue reforms, the debts could rise to almost 36 per cent of GDP by 2024, with interest payments taking as much as 75 per cent of government revenue.
Yet, the Nigerian government asserts that the country does not have a debt problem. Finance, Budget and National Planning Minister Zainab Ahmed said in 2019 “I hear people say Nigeria has a debt problem. We don’t have a debt problem. What we have is a revenue challenge and the whole of this government is currently working on how to enhance our revenues, to ensure that we meet our obligation to service government as well as to service debt.”
In March, Nigeria’s Senate approved President Muhammadu Buhari’s plan to borrow $22.7 billion from external creditors to finance infrastructure projects. Lawmakers gave their endorsement to the government during Thursday’s proceedings in the capital, Abuja, to seek the funding expected from the Islamic Development Bank, the African Development Bank, the World Bank and creditors in China, Japan and Germany.
The President said he will use the money to expand the railways, build a new hydro power dam and fund special intervention projects across the West African nation, according to a letter sent to the parliament in November.
In August, the World Bank delayed the approval a $1.5 billion loan sought by Nigeria. The delay was due to concerns over reforms, even as the World Bank believed that the country had not shown enough commitment towards achieving them. The bank had insisted on the unification of the naira and removal of fuel subsidy as key reform requirements listed as conditions precedent to obtaining its loan.
There is a deepened global consensus of opinion that the Federal Government and Central Bank of Nigeria are not serious about commitments to put in place credible processes and systems to enhance efficiency in the allocation and use of public finance in the country.
And to make up for private investment deficit, the Nigerian government has been more than keen to spend its way into some ray of sunshine in a sea of gloom that surrounds public perception about its ability to turn the incapacitated economy around. With a very poor treasury base, the only option left to the government, it believes, is to borrow.
Nigeria’s total debt stock (foreign & domestic), as released by the Debt Management Office (DMO) as at June 2020 stood at N31.01 trillion ($85.9 billion), an 8.31per cent increase when compared with N28.63 trillion ($79.3 billion) recorded in March 2020.
The breakdown shows that total external debt stood at N11.36 trillion ($31.47 billion), accounting for 36.65per cent of the total debt stock, while domestic debt represented 63.35per cent of the total debt. Domestic debts stood at N19.65 trillion ($54.42 billion) as at June 2020.
The report also reveals that N921.9 billion was used to service domestic debts between January and June 2020, while N288.6 billion ($759.6 million) was used on foreign debts, making a total of N1.21 trillion. Compared to N1.06 trillion spent in the same period of 2019, debt service increased by 14.6 per cent.
According the Minister of Finance, Budget and National Planning, Zainab Ahmed, the total public debts of Nigeria is projected to hit N38trillion by December 2021. “The total public debt stock comprising the External and Homes debts of the Federal and state governments and the Federal Capital Territory stood at N31.01trn (USD85.90 billion) as at June 30, 2020,” the minister said
“It is projected, based on existing approval, to rise to N32.51 trillion by December 31, 2020, and N38.68 trillion by December 31, 2021,” she added.
With an eye on a very unpleasant past, Nigerians have consistently pushed back against record upsurges in government borrowing, a portentous sign for policy makers trying to revive economic growth with fiscal stimulus. While the government has deployed extraordinary amounts of stimulus, there is no assurance that all the spending will be enough to get the economy out of the woods. As a matter of fact, five years of unprecedented borrowing by the Buhari administration has not grown the economy an inch, rather, the economy fell into recession in 2016 and continues to be utterly anaemic today.
What this has culminated in, is a lack of domestic appetite for any large expansion in government borrowing.
As noted by the Vice Chairman of the Senate Committee on Foreign and Local Debts, Senator Muhammad Enagi in March, “The big question in the minds of average Nigerians aware of this fact is what did we do with the money? In other words, where did the money go? What do we have to show as a people for these huge debts?”
He explained that borrowing has always served as veritable financial platforms for many countries of the world in running their economies but judiciously utilising such loans for intended projects and servicing the debts appropriately have also been problems for developing countries like Nigeria.
According to him, realities on the ground in the country in terms of required infrastructures and debts accumulations between 2006 and now appear disjointed.
The very reason, he explained, many Nigerians are worried whenever they hear that their government is seeking one loan or the other.
In December 2019, the International Monetary Fund warned that frontier economies such as Nigeria had pushed global debt to $188 trillion. According to the IMF, the average debt ratio declined in advanced economies but with no significant reduction in debt. “In emerging market economies and low-income developing countries, the average debt ratios rose further. Notably, China’s total debt ratio reached 258 per cent of GDP at end-2018 the same as the United States and nearing the average for advanced economies, which was 265 per cent”.
The greedy hustling for loans from every part of the world has negatively impacted the Nigerian economy, including the country’s capacity to service these loans. The rising cost of Nigeria’s debt profile reached a new milestone with the country’s debt service as a percentage of revenue rising to 99per cent in the first quarter of 2020. Data from the Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP) report released earlier in the year by the Federal Ministry of Finance, Budget, and National Planning shows that in Q1 2020, Nigeria incurred a total sum of N943.12 billion in debt service while the federal government retained revenue was put at N950.56 billion. This implies Nigeria’s debt service to revenue was estimated to be 99per cent during the period.
This was the highest on record and it suggested almost all the revenue generated from both oil and non-oil sources was used to meet debt service obligations.
It was this worrying outlook that led the Nigerian Economic Summit Group (NESG) to warn in August, that the federal government’s debt service to revenue ratio was unsustainably high and thus was affecting its ability to meet non-debt obligations.
In a statement released after a meeting of its board of directors, Asue Ighodalo, chairman of NESG board, warned of, “The importance of dealing with the challenge of inadequate revenue is highlighted by the very high debt service-to-revenue ratio.”
The NESG further alerted, “While this ratio has improved to 72per cent in May 2020 from 99per cent recorded at the end of March 2020, it remains unsustainably high and undermines the ability of government to meet non-debt obligations such as the provision of infrastructure, human capital development and protection for our nation’s large population of vulnerable people.
“Limited revenues also entrench the government’s dependence on borrowing from the Central Bank of Nigeria with adverse consequences for the economy.
“Furthermore, attention must be paid to the efficiency and effectiveness of government spending,” the warning added.
The Buhari administration has shown itself to be unconcerned about the quality of loans it gets from abroad and even more blasé about the opinions of most Nigerians. The government has been more concerned with accessing large tranches of funds to spend on infrastructure projects in order to plant a legacy. Long consigned by Nigerians as underperforming and highly deficient in economic management, the current administration has thrown caution to the wind in hustling for more loans at a time when the nation’s capacity to meet its debt obligations is getting increasingly suspect.
This has been compounded by the COVID-19 pandemic that has further weakened the country’s treasury base.
Despite the federal government and its officials persistently stating that Nigeria does not have a debt problem and refusing to request a delay in debt-service payments this year from bilateral and commercial creditors, many observers warn that the near and long term future is full of risks, if not ominous.
Simisola Eyisanmi, a Lawyer and Head of the Financial Markets Group of Chris Ogunbanjo LP, warned recently that, “notwithstanding the assurances of the federal government, there is the looming apprehension that the economic fallout of the pandemic may very well trigger Subnational and Sovereign Bond defaults in the very near future…Given the uncertainties around revenue generation, a pending fiscal deficit, and the country’s inability to fund its FAAC monthly allocations to State Governments, the likelihood of a default in State and Federal Government bonds, is imminent. The Irrevocable Standing Payment Order issued by the Accountant General of the state/the federal government is therefore, of no consequence where the revenue generation is insufficient to meet the debt obligations.”
What is very obvious is that Buhari and his administration will continue to beg for and grab every loan that comes its way. It is unconcerned about how the debts will be paid back. As a matter of fact, the current administration has absolutely no idea, short or long term plan or strategy that will support the payment of these loans in a way that does not impair future economic growth and development post-Buhari.
It is this understanding of nonchalance that has got many Nigerians agitated and wondering if another ‘Olusegun Obasanjo’ will ever come again to undo the folly of the Buhari administration