With debt service-to-revenue ratio at 98 per cent, President Muhammadu Buhari has apparently ignored overwhelming public outcry against taking new loans, with a fresh request to the National Assembly to approve external loans worth N2.5trillion. This consists of $4.05billion and €710 million. The loan request is contained in a letter he addressed to the leadership of the Senate and House of Representatives on Tuesday.
The loans, he explained, would be used to fund projects captured under the 2018-2021 Borrowing Plan through Sovereign loans from the World Bank and other external financial institutions. If approved, Nigeria’s debt stock would have risen to over N35trillion. Data from the Debt Management Office (DMO) confirmed that debts by federal, states and Federal Capital Territory (FCT) as at June this year, stood at N35.5trillion. This comprised of N21trillion domestic debt and N14.5 trillion external loans. Besides, the Federal Government has reportedly finalised another N10trillion overdraft with the Central Bank of Nigeria (CBN).
Additionally, about 85 per cent of matured loans are being rescheduled. This has made the nation’s borrowing unsustainable. Yet, the end to federal government’s borrowing spree is not in sight. On May 18, 2021, President Buhari got the approval of the Senate to borrow $6.18 billion foreign loan to finance this year’s N5.6trilion budget deficit. Also, on July 8, this year, the Federal Executive Council (FEC) approved the 2022-2024 Medium Term Expenditure Framework and the Fiscal Strategy Paper, authorising the funding of N5.6trillion deficit envisaged in the 2022 budget through borrowings. Not less than 90 per cent of total of government revenue is spent on debt servicing. With a sharp decline in revenue, not only is the present spate of borrowing unsustainable, the future is also bleak. There is need for a moratorium on further borrowing.
It is disturbing that under the present administration, Nigeria’s public debt has ballooned from N12.12 trillion in June, 2015, to N33.11trillion as at March, 2021. This represents about 296 per cent rise in six years. Nigerians are, indeed, worried about the consequences of the unrelenting borrowing. Available statistics show that Nigerians have grown poorer in the past six years. The way the National Assembly approves such loan requests by the President, without much scrutiny, is benumbing. There is need for the legislature to evaluate the utilisation of existing loans and the level of implementation of the projects for which the loans were granted in the first place.
The latest loan request is even more precarious considering the slow growth in government’s revenue compared to the rising debt stock. At the current debt service-to revenue- ratio of 98 per cent, it means that for every N1 earned, N0.98 is spent on debt servicing. In spite of this, overheads and statutory spending have continued to increase. This is perhaps the worst the country has faced in decades. The anxiety is that the nation’s total debt stock would hit N40trillion by year end. Between January and May this year, government spent N1.8trillion on debt service obligations. The figure represents 98 per cent aggregate revenue within the period, which is 44.6 per cent lower than the projected revenue of N3.32trillion for the period. Unfortunately, the nation’s revenue base has not been expanded to make appreciable impact on the economy.
According to DMO, Nigeria has taken loans worth $31.98 billion from leading global financial institutions. This is contained in the September 2020 debt stock. According to the report, Nigeria has an outstanding $11.6 billion loan to be paid to creditors. Also, the report shows that Nigeria owes the IMF $3.45billion and $2.24billion to Africa Growing Together Fund and African Development Fund. This is in addition to unpaid debts to four international lenders put at $298.12 million.
To avoid another debt trap, the Federal Government must immediately comply with the Revised Guidelines of the 2020 DMO on external and domestic borrowing. For external borrowing, the Federal Government and its agencies are now required to prepare a National Debt Management Strategy for the approval of the Federal Executive Council (FEC). In view of the nation’s unsustainable borrowings and the impending debt overhang, we advise the government to suspend taking fresh loans. A government that has less than two years to leave office must be consolidating on its projects and should not plunge the country into avoidable debt crisis.