By Victor ‘Tunde Oso & Nkiruka Nnorom
With Nigeria’s debt stock growing by 3.11 per cent from $81.27 billion recorded in the first quarter of 2019 to $83.88 billion (N25.70 trillion) at the end of June 2019, economists are almost unanimous in opposition to President Muhammadu Buhari’s request to the National Assembly last week for permission to obtain an external loan of $29.96 billion, which the administration claimed it needed to execute key infrastructural projects across the country.
According to the Debt Management Office, DMO, Nigeria’s external debt rose by 163% between 2015 and 2019 at $83.88bn. The total external debt stands at $27.16 billion, while domestic debt climbed to $56.72 billion.
Buhari had this same request thrown out by the 8th Senate in 2016, with the then-Senate spokesperson, Aliyu Abdullahi, blaming their action on the incompetence of presidential aides tasked with preparing the proposal.
The President, in a letter read at plenary, penultimate week, by the President of the Senate, Senator Ahmad Lawan, re-presented the request for an external loan, which will cover a three-year period, including the sale of Eurobonds worth $4.5 billion and planned budget support of $3.5 billion. It is widely believed that the loan request will face little or no resistance owing to the cordial relationship between the leadership of the National Assembly and the Executive arm of government.
Meanwhile, economists, who spoke to Vanguard, are concerned that the fresh external loan would further escalate the country’s loan stock.
Siding with Buhari, CEO of Financial Derivatives Limited and member of the Economic Advisory Council, Bismark Rewane, said there was nothing wrong with borrowing as long as it was tied to projects that will impact the people.
The economist said if the projects were the ones that could be identified and will not lead to wastage, then the President was on the right course.
Rewane dismissed the notion that borrowing was bad, saying what it is used for should be the questions Nigerians should be asking and not faulting borrowing itself.
“External borrowing is an integral part of financing plan for the current budget. What is important is to ensure that subsequent spending is strictly infrastructure-focused. Borrowing should also be on concessionary terms to mitigate the burden of debt service,” he argued.
Rising debt profile, cause for concern — MAN D-G
The Director-General of the Manufacturers Association of Nigeria, Segun Ajayi-Kadir, said: “In my opinion, the 39 emergency projects in the power, agriculture, transport & mining sectors of the Nigerian economy alluded to by Mr. President should redress some of our infrastructure and sectoral performance/linkage deficits.
“To this extent, the projects are needful and their successful completion would boost the productive capacity of the Nigerian economy.
“However, the rising debt profile of Nigeria continues to be a cause for concern, especially the capacity of government to effectively service it and, at the same time, meet the bursting needs and aspiration of the citizenry going forward. “Already, our budget projections for 2020 anticipates a debt service sum of ¦ 2.45trillion, an amount higher than the ¦ 2.14 trillion earmarked for capital expenditure.
“And even though our debt-to-Gross Domestic Product (GDP) ratio, which currently stands at 28 per cent, is still below the average in Africa, our revenue-to-GDP ratio remains low.
“A possible consolation remains that this loan is not programmed to fund consumption, but likely to improve our productivity, depending on its strategic allocation, the governance of project execution and monitoring and management of its foreseen impact on subsisting government inflows and financial commitments” .
Avoid full-blown debt crisis — LCCI
To Muda Yusuf, Director-General Lagos Chamber of Commerce and Industry, the growing national debt is a cause for concern as the debt profile grew from N12.6 trillion in 2015 to N25.7 trillion in 2019 second quarter, an increase of 104 per cent.
Yusuf’s words: “There is also the bigger worry about the capacity to service the debt. For instance, the debt service provision in the 2019 budget was a whooping N2 trillion; whereas the total capital budget was N2.9 trillion; this implies that the debt service commitment was 70 per cent of capital budget allocation.
“Debt to revenue ratio was about 30 per cent, which is also on the high side.
In the 2020 budget, debt service commitment and recurrent spending are beginning to crowd out capital expenditure.
“This trajectory is not consistent with our national aspiration to build infrastructure and a competitive economy. Debt service of N2.45 trillion is more than the capital budget of N2.14 trillion in 2020 budget. That is 114 per cent of capital budget.
“It is against this background that the new request for $30 billion is troubling. Care should be taken to avoid a full-blown debt crisis.
The opportunity cost of high debt service commitment for the economy and citizens is very high.
“There is also the exchange rate risk inherent in the exposure to mounting foreign debt which we need to worry about. As the currency depreciates, the burden of servicing foreign debt would intensify. This is a major problem with increasing the stock of foreign debt.
“This underlines the need for appropriate policy choices to attract domestic and foreign private-sector capital for infrastructure financing. The government needs to look beyond tax credit in its quest for more complementary funding sources for infrastructure. We should be looking more in the direction of equity financing. But for this to happen, the policy and regulatory environment must be right.
“It is also critical to review the spending structure of government and the cost of governance. The ballooning recurrent expenditure, in the face of declining revenue is a cause for concern.
“There is a need to clarify the new loan request in relation to the 2020 budget and the 2020 -2022 medium-term expenditure framework. Additionally borrowing should strictly be in line with Section 41 of the Fiscal Responsibility Act which stipulates that ‘government at all tiers shall only borrow for capital expenditure and human development, provided that, such borrowing shall be on concessional terms with a low-interest rate and with a reasonable long amortization period.’”
Urgent need for national debt emergency summit — Enwegbara
Leading management and financial consultant, Odilim Enwegbara, Chairman/CEO, Pan Africa Development Corporation, on his part, said, “If one looks at our current debt to GDP ratio, one will see no cause for alarm; after all, ours is, of course, the lowest among peer economies.
But, then, when one takes a look at the country’s cost of borrowing and cost of debt service obligation, one will begin to understand why Nigeria has the highest cost of borrowing.
“This couldn’t be otherwise when most of our debts are simply based on consumption because of bloated current spending due to bloated big government and high cost of running it.
“It is as a result that we are the highest in debt service to revenue ratio not only among peer economies but, in fact, among modern economies in the world.
This is why Nigeria is already inside a debt trap because it can never generate enough revenue to address its high recurrent obligation let alone begin to cut down its debt-driven fiscal deficit spending.
“One of the reasons for this unfortunate situation is running an overly centralized Federation Government where everything has to happen at the centre with the central government constantly a place to share rather than a place to make sound economic policies to guide competitive states.
“And where debts are tied to capital investments, one sees Federal Government making such decisions based not on where the country has the highest economic value propositions, but purely based on political considerations that have nothing to do with economic growth decisions.
“That is why on the one hand I’m in support of borrowing especially loan debts. On the other hand, however, I am fiercely opposed to borrowing without thoroughly doing debt sustainability analysis, including having a robust set of carefully analysed return on debt versus most optimal debt repayment options.
“That is why, right now, there is the urgent need for a national debt emergency summit. This should bring together the President, governors, federal lawmakers, relevant ministers, and state commissioners.
“This weeklong gathering should be an avenue to fully interrogate the state of the country’s debt and the urgency to curtail more consumption borrowing. At least the country should have kind of borrowing moratorium on non-project tied borrowing”.
NASS should turn down Buhari’s request — Onyekpere
And according to the Lead Director, Centre for Social Justice, Eze Onyekpere, the bid by Buhari to acquire more debt is a step in the wrong direction.
Onyekpere said: “The facts backgrounding this request are clearly and specifically as follows:
“Nigeria currently uses 54 per cent of its earned revenue to pay back and service existing debts. This is not sustainable and any further attempt to borrow without considering how the debts will be repaid amounts to fiscal rascality.
“Already, in the last four years, we have spent more on debt servicing that we have done on capital expenditure due to the plethora of new debts incurred by the administration.
“There is no evidence to show that previous borrowing has been invested in capital expenditure or human development as stipulated in the FRA.
“The request to NASS was not accompanied by a cost-benefit analysis as required by Section 44 of the Fiscal Responsibility Act, FRA. This would have shown the likelihood of the investments generating returns to be used for repayment.
“The Federal Government is in disobedience of the order of the Federal High Court in Suit No. FHC/ABJ/CS/302/2013 between the Centre for Social Justice Limited by Guarantee (CSJ) against five Defendants namely, the President of the Federal Republic of Nigeria, the Senate of the Federal Republic of Nigeria, the House of Representatives of the Federal Republic of Nigeria, the Minister of Finance and the Attorney General of the Federation and Minister of Justice (who are the first to the fifth Defendants respectively). The court had ordered the defendants to set the consolidated debt limits for the federal, state and local governments in accordance with Section 42 (1) of the FRA. The Federal Government cannot claim any right to be borrowing purportedly on behalf of Nigerians when it is in contempt of orders of the court.
“NASS is, therefore, called upon to turn down the request for borrowing as it is an obnoxious request and seeks to mortgage the future of generations unborn.
“Such a request must come with a list of the projects, their feasibility and the reasons informing their selection. It must be in the public domain and Nigerians should be allowed to determine whether to take the loan or not. This request should be turned down”.
Little infrastructure on ground to back Buhari’s claim — Lecturer
Toeing the line of critics, economics lecturer, Bingham University, Abuja, Dr. Jonathan Oniore, said, to say the least, there is no visible infrastructure on ground to justify what has been borrowed so far by government.
“Another cheap and popular argument for continuous reckless borrowing by government is debt as a per cent of GDP/ Debt-to-GDP Ratio. Presently, Nigeria’s Debt-to-GDP Ratio is approximately 29.78 per cent of the GDP”, Oniore said.
“This ratio is a useful tool for investors, leaders, and economists. It allows them to gauge a country’s ability to pay off its debt. A high ratio means a country isn’t producing enough to pay off its debt. A low ratio means there is plenty of economic output to make the payments.
“With the present Debt-to-GDP Ratio, the country can continue to borrow. For example, a debt-to-GDP ratio of 60 per cent is recommended for developed countries. “This suggests that crossing this limit will threaten fiscal sustainability. For developing and emerging economies, 40% is the suggested debt-to-GDP Ratio that should not be breached on a long-term basis.
“However, it is argued that high debt-to-GDP Ratios cause macroeconomic instability which is not good for growth and hence make continuous borrowing unsustainable.
“The implication of the unsustainable Nigeria’s debt profile is the amount spent on debt servicing. For instance, the government estimates ¦ 2.45 trillion in debt service in the 2020 national budget.
“Nigeria’s debt service cost is rising on an annual basis. The debt servicing cost implication for the Federal Government, especially when put vis-a-vis its revenue, continues to remain a huge challenge as it seems to be on a constant upward trajectory.
“Nigeria’s debt debacle, if not properly dealt with, could end up plunging the country into a debt trap, especially if its debt servicing rises to unsustainable levels.
“To me, the present 20 per cent of the total budget for debt servicing is unsustainable no matter whatever argument that may be advanced by policymakers or governments. Additional borrowing means more money will be set outside for debt servicing in 2021 budget, to the detriment of infrastructural development.
“Nigeria’s rising debt service has the capacity to crowd out expenditure in critical infrastructure and human capital development, with ¦ 2,140 trillion for capital project and ¦ 2.45 trillion in debt service in the 2020 budget. No gainsaying, the debt crisis is imminent.
“Nigeria’s debt profile is not sustainable and poses a serious threat to the survival of Nigeria going forward. Therefore, government at all the tiers, as a matter of urgency, must take deliberate steps aimed at cutting the cost of governance and particularly recurrent expenditures.
“Another alternative to continuous borrowing is for the Federal Government to broaden it sources of revenue for budget and financing infrastructures. A good example of other sources of financing infrastructures is the recent sovereign Sukuk bond subscribed to by the Federal Government to raise funds through the non-interest capital market. The Sukuk issue is targeted at infrastructure development and financial inclusion.
“Finally, with the looming debt crisis and burden for generations unborn, I call on the National Assembly, civil society organizations, the academies and all Nigerians to vehemently resist the proposal to borrow additional $29.96bn by the Federal Government”.
Fiscal discipline is key — Sanni, CEO, Emerging Africa Capital
Also speaking, Toyin Sanni, Group Chief Executive Officer, Emerging Africa Capital said: We not only need to try not to increase our debt service burden, but we should also ideally seek to ease it. As a country, we need to exercise fiscal discipline. This covers the relationship between revenues and expenditure. In addition, we should not only borrow with caution but for the right reasons and should utilize the loans with prudence and accountability. Adherence to the Fiscal Responsibility Act is key.
The government has indicated that these borrowings are critical to the delivery of its policy programmes related to power, mining, roads, agriculture, health, water and education. Whilst these sectors are, no doubt, of critical importance to the economy, there may be a need for a programme by programme examination before a conclusion can be made as to the alternatives such as Public-Private Partnerships (PPPs) and concessions.
Alternatives government seems reluctant to consider include the sale of government assets and reallocation of funds from other commitments. he key remains the implementation of policies that will inspire confidence in the management of our economy and encourage much-needed investments by domestic and foreign private sector players in infrastructure and other critical sectors of our economy.
The Economic and Recovery Growth Plan (ERGP) remains a well-articulated plan, which government is encouraged to implement with consistency.
There is no doubt that government has a responsibility to deliver on its promises to the electorate. However, the rational public knows that this cannot be achieved by direct spending no matter how hard government tries.