Vanessa Obioha writes that the rising debt profile of Nigeria brings a scrutiny on President Muhammadu Buhari’s administration, which is arguably, the only government that has borrowed more than any in the new democratic dispensation — and perhaps the only administration that has recorded two economic recessions
Nigeria’s economy, like most nations in the world, contracted due to the unprecedented Coronavirus pandemic last year. The global crash in oil prices forced the country to suspend the external commercial borrowing as indicated by the Minister of Finance Zainab Ahmed. Ninety per cent of the country’s foreign exchange earnings and about 60 per cent of its total revenue are from the oil sector.
As of March 2020, Nigeria’s total public debt was N28.63 trillion, about a 15 per cent increase from a corresponding period in 2019, according to the Debt Management Office. By June 2020, the total public debt was N31.01tn. The third quarter recorded $31.9 billion in external debt. By last December, the total public debt was N32, 915 trillion, about 21.61 per cent of Gross Domestic Product (GDP). The public debt includes the debt stock of the federal and state governments, as well as, the Federal Capital Territory.
This rising debt has put a lot of pressure on the government’s resources as it spent $1.69 billion (N609,13 billion) to service its domestic debt in the first quarter of 2020 alone.
The Debt Management Office (DMO) in a statement in March said that the borrowing of 2020 pushed Nigeria’s debt to N32.9 trillion, although it pointed out that new borrowing to finance budget deficits had declined between 2017 and 2019. But this trend was adversely reversed last year as the pandemic and its resultant effects pegged the new borrowing in the revised 2020 Appropriation Act at N4.20 trillion.
The agency, however, noted that most of its new borrowings were concessional loans from the International Monetary Fund (IMF) (USD3.34 Billion) and other multilateral and bilateral lenders.
Since this administration began in earnest infrastructural and developmental projects to boost the fragile economy, the debt stock has been on a rise. Most of these loans are from China, which is concessioned to handle some of the infrastructural projects, mainly the railway network.
Nigeria’s debt to China was a major cause of concern to citizens last year and caused quite an uproar such that the DMO had to release a statement to clarify facts. It stated that the total borrowing by Nigeria from China was “USD3.121 billion (₦1,126.68 billion at USD/₦361). This amount represents only 3.94% of Nigeria’s Total Public Debt of USD79.303 billion (₦28,628.49 billion at USD/₦361) as of March 31, 2020. Similarly, in terms of external sources of funds, loans from China accounted for 11.28% of the External Debt Stock of USD27.67 billion at the same date.”
It argued that China wasn’t the main source of funding for the Nigerian government while giving a breakdown of the projects funded by China’s loan.
“The USD3.121 billion loans are project-tied loans. The projects, ( 11 in number as of March 31, 2020), include the Nigerian Railway Modernization Project (Idu-Kaduna section), Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernization Project (Lagos-Ibadan section) and Rehabilitation and Upgrading of Abuja – Keffi- Makurdi Road Project.
“The impact of these loans is not only evident but visible. For instance, the Idu – Kaduna Rail Line has become a major source of transportation between Abuja and Kaduna. Also, the new International Airport in Abuja has improved air transportation for the populace, while the Lagos – Ibadan rail line when completed, will ease traffic on the busy Lagos -Ibadan Expressway. The projects also have the added benefits of job creation, not only by themselves but through direct and indirect service providers, a number of which are small and medium enterprises.
It is widely accepted that investment in infrastructure is one of the most effective tools for countries to achieve economic growth and development. Using loans from China to finance infrastructure is thus in alignment with this position,” it explained.
But the concerns still grew since China has been criticized for debt-trap diplomacy, even though there are reports that vindicate China from such practices. In the last two decades, China has been seen as a lifesaver by most African countries that seek to end their dependence on IMF and World Bank.
African countries with the largest Chinese debt as of 2020 are Angola ($25 billion), Ethiopia ($13.5 billion), Zambia ($7.4 billion), the Republic of Congo ($7.3 billion), and Sudan ($6.4 billion). In total the Chinese have loaned US$143 billion to African governments and state-owned enterprises between 2000 and 2017.
However, the rising debt profile of Nigeria has called for scrutiny on President Muhammadu Buhari’s administration. It is arguably, the only government that has borrowed more than any in the new democratic dispensation — and perhaps the only administration that has recorded two economic recessions. From the beginning of this administration in 2015 to December 2020, the country’s external debt profile increased from $9.7 billion to $27 billion.
During President Olusegun Obasanjo tenure, Nigeria which was at the time one of the most indebted nations in the world was able to offset the Paris Club debt that enabled Nigeria to pay most of its overall debt of $36 billion with just only $3 billion external debt owed. The late Musa Yar’Adua who took over from him left a slight increase from that amount before his demise. When President Buhari assumed office, the country’s total public debt profile was $10.316 billion.
That figure is a far cry from Nigeria’s standing debt profile today. One of the major concerns is that while the total debt spikes, the total factor productivity growth plummets.
Nigeria is not the only economy that suffered the effects of the pandemic. The United States, a developed nation that had a worst-case scenario of the pandemic saw its national debts rising last year. According to New York Times, the country’s debt stood at $20.53 trillion by the end of the second quarter of 2020.
African countries like Angola and the Republic of Congo are experiencing high levels of debt. They both have government debt of 120.3% and 104.5% of GDP respectively.
It is expected that the various initiatives of the Federal Government to increase revenues such as the Strategic Revenue Growth Initiative and the Finance Act, 2020, should help shore up the government’s revenue and reduce the debt service to Revenue Ratio, according to DMO.
QUOTE
As of March 2020, Nigeria’s total public debt was N28.63 trillion, about a 15 per cent increase from a corresponding period in 2019, according to the Debt Management Office. By June 2020, the total public debt was N31.01tn. The third quarter recorded $31.9 billion in external debt. By last December, the total public debt was N32, 915 trillion, about 21.61 per cent of Gross Domestic Product (GDP). The public debt includes the debt stock of the federal and state governments, as well as, the Federal Capital Territory. This rising debt has put a lot of pressure on the government’s resources as it spent $1.69 billion (N609,13 billion) to service its domestic debt in the first quarter of 2020 alone
