Amechi Ogbonna, Bimbola Oyesola, Uche Usim, Isaac Anumihe, (Abuja)

Fresh debate on Nigeria’s debt sustainability erupted across the country last week following indications that the Federal Government has received the National Assembly’s nod to borrow another $5.5billion from multilateral institutions as part of measures to finance its widening deficit currently put at N3trillion.

While not a few commentators condemned the government’ unmitigated external borrowing binge, others say it has become inevitable given the collateral damage done the economy by COVID -19 pandemic. But one very central argument in the current debate is the fact that  the country’s debt sustainability profile against government’s revenue shortfalls from  crude oil and taxes have added to concerns about its ability to utilise the loans for the purpose intended against the backdrop of rising public sector profligacy under the administration.

This was even as some have warned that entering into a debt trap will clearly jeopardize Nigeria’s economic recovery efforts post COVID-19”.

For instance, the Lagos Chamber of Commerce and Industry (LCCI)while responding to anxieties raised by the borrowings, expressly warned there is need to worry about debt sustainability.

LCCI Director General, Muda Yusuf, said he is concerned the nation’s current debt service to revenue ratio is already too high at about 60 percent or even more.

“There is need for clarity as to whether the borrowing proposal is part of the borrowing plan submitted ahead of the presentation of the 2020 budget and the corresponding Medium Term  Expenditure Framework (MTEF). If that is the case,  then there would be less cause to worry.  But if this is an additional loan, then there is need for caution,” he said.

Yusuf observed that Nigeria’s a fiscal crisis is both a revenue and expenditure issue, noting that the current expenditure profile requires drastic reforms.

He however noted that cost of governance and fiscal leakages are still part of the challenges that the government is still grappling with.

According to the LCCI boss, the Buhari government needs to clean up the space to justify fresh borrowings.

He said, “Besides, we need to reckon with the capacity to service current stock of debt. We have reached a point where debt service provision has outpaced capital budget.

“Government revenue can barely cover its recurrent expenditure and such scenarios  do not augur well for fiscal sustainability of the country.”

Also reacting, Trade Union Congress (TUC) said  loans are typically not bad par se, but that its concern rather is what the government is borrowing for.

The TUC President, Quadri Olaleye, stated that borrowing for capital projects and investment is reasonable, but borrowing to feed children who are with their parents during the lockdown does not make any economic sense.

He said, “Truth be said, a lot of money can be saved if only we can reduce the cost of governance in Nigeria. A sagging economy like ours should not spend much on public office holders and leaving almost nothing for capital projects.

Olaleye noted that a lot has been said about diversification, without any serious attention paid to agriculture and manufacturing sectors to fully address the issues of job creation, forex, among others, stressing that it was high time Nigeria began to add value to its agricultural produce, like cocoa, cotton, fruits, yam, cassava, rice as that is the only way jobs can be created.

“It is preposterous that we export crude and import refined products. What happens to other by products that are critical for the production of fertilizer and others (petrol chemical industry??,” he queried.

“We make ourselves a laughing stock when we run cap in hand to international organisations begging for loans and grants whereas the presidency alone has more than four jets.

According to him, how government manages Post COVID-19 period will either make or mar the country’s economy,” he said.

He added further, “In a nutshell, borrowing is not bad.

Already Nigeria’s Organised Labour movement and the Private Sector (OPS) have warned the Federal Government that it’s meme of unbridled borrowing from external institutions under whatever guise will spell doom for the country.

Calling for an immediate end to the habit which the government now considers as the only  avenue out of every economic quagmire, stakeholders said with the latest request by the Muhammadu Buhari government would push the nation’s debt servicing obligations to about N3.0 trillion from N2.4trillion earlier approved in the 2020 budget.

Condemning the trend of confining the country into an economy surviving on borrowing the Nigeria Labour Congress (NLC) said Nigeria’s external debt had already hit a 16 year high of US$27 billion with a debt servicing commitment of US$1.5 billion per annum which is about 5 percent of the 2020 federal budget and 75 percent of the nation’s external reserves.

NLC President, Ayuba Wabba, said it is of great concern that the nation’s current total debt profile is almost at par with what the country owed the Paris Club before the debt amnesty of about US$18 billion from a total debt stock of US$35.994 billion.

The is was even as the Central Bank of Nigeria (CBN) records show that the Government borrowed over N4.4 trillion by ways and means in 2019 alone.

Wabba, said this was far beyond the maximum of N4.5 billion allowed in CBN legal statutes on ways and means window.

He stated that the budgetary and planning processes in Nigeria needs be overhauled to become more socially inclusive, citizens-centred, value objective and reflective of real national developmental needs.

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He said, “Pursuant to this, we call on the National Assembly to set in motion legislative processes to deliver the promises of Chapter Two of Nigeria’s Constitution. On the budget process, we must cut our cloth according to our materials. We must discard the use of assumptive and deficit budgets that cannot be funded by available resources and heavily dependent on local and foreign loans especially for recurrent expenditure. The focus of foreign loans must be for developing and expanding our infrastructure.”

“We call for immediate stop to foreign borrowing to finance consumption. Where necessary, foreign loans must be tied exclusively to capital projects with feasible income and debt repayment potential cum projections,” he said.

Similarly, the Public Service International (PSI) likewise warned that the spontaneous mode of borrowing will be a big burden on the future generations, moreso as the present government cannot pay all the debts before leaving the office.

PSI Vice President for Africa and Arab Region, Peters Adeyemi, noted that though there’s no problem in borrowing, the present government has borrowed so much in the last five years without any means of direct repayment and nothing to show for it.

“Government needs to slow down on external borrowing. If we recall a loan from the IMF has just been approved in the last three weeks by the National Assembly, which has to be cautious and concerned about approving loans and we need a proper monitoring in place to ensure prudent use of all these loans,” he said.

The Labour leader said Nigeria needs to reduce the quantum of loans being taken and ensure the loans are tied to developmental projects.

He also said that it was high time Nigeria government learned to save for the rainy days as well as diversify the economy so that the nation’s would not be scampering for loans anytime there’s problem globally with oil prices the mainstay of the nation’s economy.

For its part, the Nigeria Employers Consultative Association (NECA) said the country’s rising debt profile is of great concern to members of the OPS as these to a large extent, have not translated into meaningful economic or infrastructural development, since the commencement of the present administration.

The NECA Director General, Timothy Olawale noted that the budget was revised from N10.59 trillion to N10.52 trillion based on a drop in global oil prices precipitated by the crisis between Russia and Saudi Arabia and other intricacies surrounding it, as well as the impact from the COVID-19 pandemic. But in order to mitigate the impact, crude oil price was revised to $25 per barrel, output projected at 1.94mbpd and exchange rate of N360/USD, while the budget has N5.36trillion deficit to be financed through domestic and foreign loans and proceeds from privatizations. But he reasoned that despite the provisions for the borrowings to finance the 2020 Budget deficits, a report published by the World Bank projected that debt servicing will take up about 75 per cent of Federal Government’s revenue by 2024, is worrisome.

He said, “In our opinion, we believe that the practice of borrowing to finance recurrent expenditures could spell doom for the country. External loans should be tied exclusively to capital projects with feasible income and debt repayment potential.”

Olawale said in the quest to reduce the rising debt profile, the OPS is suggesting that Federal Government should sell-off or concession its assets that are lying fallow and moribund, and the proceeds from it should be channel into financing annual budget deficits.

He stated that the crowding out effect of borrowing locally has taken its tolls on the private sector in securing funds, adding that in order to secure private sector driven development, managers of the economy need to address this angle. To shore up the revenue base to support the budget deficit, Olawale advocated for a more concrete partnership with critical stakeholders like the Nigeria Employers‘ Consultative Association (NECA), in rallying revenue support within its constituents of Organized Private Sector, as it is noticeable that non-oil revenue is more stable than the oil revenue.

He stated, “Constant engagement with critical stakeholders in the Niger-Delta region to ensure conducive environment for oil production, distribution and export, would help in achieving the Revenue projection”.

However, going forward, NECA requested that both the fiscal policy makers and the Legislature, should have a strategic plan on easing off deficit budgeting and endeavour to maintain the deficit within the 3% level threshold stipulated in the Fiscal Responsibility Act, 2007 over the coming years.

The NECA Director General emphasized that the lower budget deficit would help in reducing the rate of domestic debt accumulation and the resulting debt service payments, contain deficit monetization and attendant macroeconomic dislocations.

Meanwhile some experts have described the Federal Government’s plans to borrow additional $5.513 billion from multilateral sources as inevitable and necessary, after the COVID-19 pandemic devastated the global economy, leaving many nations with no option than to borrow to augment unanticipated budgetary shortfalls.

But they have also warned that the funds be judiciously spent on infrastructure and other areas that will help to quickly reflate the economy. The external borrowing plan according to the government, gives the country better options of lower interest rate and long tenors.

But the fresh borrowings have raised  concerns over the possibility of Nigeria entering into a debt trap with myriads of loans from across the world.

Already, the Organised Private Sector (OPS), has said the growing national debt was a cause for concern after it grew from N12.6 trillion in 2015 to N27.4 trillion at the end of 2019.

Odilim Enwegbara, a Developmental Economist told Daily Sun he fully supports deficit financing through borrowing and quantitative easing, as there were really no alternatives on ground to lift the economy out of the doldrums.

He said: “What are the alternatives? I support borrowing from wherever we can find the money.

“But I support borrowing with immense caution because this is not the time for reckless borrowing. It is not the time for consumption, big government recurrent spending borrowing.

“But rather, this is the time for prudent and wise borrowing. Time for borrowing that comes with high returns on debt and that is designed to trigger the long awaited industrialisation and economic diversification. Also responding, Uche Uwaleke, a professor of capital market told Daily Sun that the government should have gone ahead with its original plan of cutting the 2020 budget by as much as N1.5 trillion owing to the drastic fall in projected revenue,

“But the reduction became a mere N71 billion creating room for more debt financing. The government needs to tread carefully with respect to accumulating debt in view of the already high debt service to revenue ratio.“That the country’s external debt burden has not reached crisis point is apparently due to the fact that much of its $27.6  billion as of December 2019 has come from multilateral sources which are chiefly concessional in nature- long tenor with low interest rate.

Now that all arrangements have been put in place to secure new foreign loans albeit from multilateral institutions, it is important to ensure that they are applied to infrastructure projects in line with the provision of Section 41 of the Fiscal Responsibility Act. “While the government is encouraged to muster every resource in the fight against the pandemic and avert recession, entering into a debt trap will clearly jeopardize economic recovery efforts post COVID-19”, he stated.

Tope Fasua, an Economist and Founder of Global Analytics Consulting Limited, told Daily Sun that Nigeria cannot escape borrowing ultimately to avoid sliding into recession.