· External loan grows at 366% since 2015
· Debt servicing now a burden – Analysts
By Emma Ujah, Henry Umoru, Peter Egwuatu and Nkiru Nnorom
As President Muhammadu Buhari presents the Senate with another request for the consideration and subsequent approval of a fresh external borrowing to the tune of $4.054 billion, Nigeria’s external loan stock is set to reach an all-time high of $45.2 billion.
The proposed addition to the debt stock indicates that external borrowings have skyrocketed the nation’s foreign debt portfolio by 366 per cent since 2015 when the total outstanding foreign debt was $9.7 billion.
This comes against a huge decline in actual revenue over a six-year period with 2020 recording N3.4 trillion, about a 37 per cent decline against N5.43 trillion recorded in 2015.
Also, the approval of the new request will bring the total approved foreign borrowings in 2021 alone to $12.3 billion.
The new borrowings are tied to funding projects captured in the 2018- 2021 borrowing plan.
Buhari in the letter dated August 24, 2021, and read during the plenary yesterday by President of the Senate, Senator Ahmad Lawan, is asking for external borrowing of $4.054bn, €710m, $125m in an addendum to the 2018-2020 borrowing plan.
The letter explained that the projects listed in the 2018-2021 Federal Government Borrowing Plan are to be financed through sovereign loans from the World Bank, French Development Agency, AFD, China-Exim Bank, International Fund for Agricultural Development, IFAD, Credit Suisse Group and Standard Chartered/China Export and Credit (SINOSURE) in the total sum of USD4,054,476,863.00; Euro 710,000,000.00 and Grant Component of USD125,000,000.00.
According to him, the amount will be used to fund federal and states government’s projects across key sectors, such as infrastructure, health, agriculture and food security, energy, education and human capital development and COVID-19 response efforts.
President Buhari explained that the projects which are spread across the six geo-political zones of the country would bring about employment generation and poverty reduction, as well as protection of the most vulnerable and very poor segments of the Nigerian society.
The letter read: “I write in respect of the above subject and to submit the attached addendum to the proposed 2018-2021 Federal Government External Borrowing (Rolling) Plan for the consideration and concurrent approval of the Senate for same to become effective.
“The Senate President may wish to recall that I earlier transmitted a request on the proposed 2018-2020 Federal Government External Borrowing Plan for the concurrent approval of the Senate in May, 2021.
“However, in view of other emerging needs and to ensure that all critical projects approved by FEC as of June 2021 are incorporated, I hereby forward an addendum to the proposed Borrowing Plan.
“The Projects listed in the addendum to the 2018-2021 Federal Government External Borrowing Plan are to be financed through sovereign loans from the World Bank, French Development Agency (AFD), China-Exim Bank, International Fund for Agricultural Development (IFAD), Credit Suisse Group and Standard Chartered/China Export and Credit (SINOSURE) in the total sum of USD4,054,476,863.00; Euro 710,000,000.00 and Grant Component of USD125,000,000.00.
“The Senate is kindly invited to note that the projects and programmes in the Borrowing Plan were selected based on positive, technical and economic evaluations and the contribution they would make to the socio-economic development of the country including employment generation and poverty reduction as well as protection of the most vulnerable and very poor segments of the Nigerian society.
“The Senate may also wish to note that all the listed projects in the addendum form part of the 2018-2021 External Borrowing Plan and cover both the Federal and States Government projects and are geared towards the realization of the Nigeria Economic Sustainability Plan that cut across key sectors such as Infrastructure, Health, Agriculture and Food Security, Energy, Education and Human Capital Development and COVID-19 Response efforts.
“A summary of some key projects in each of the six geo-political zones and a summary on the expected impacts on the socio-economic development of each of the six (6) geo-political zones are attached herewith as Annex II and III.
“Given the importance attached to the timely delivery of the projects listed in the proposed Borrowing Plan and the benefits both the Federal and State Governments stand to gain from the implementation of same, I hereby wish to request for the kind consideration and concurrent approval of the Senate for projects listed in the addendum to the 2018-2021 Federal Government External Borrowing Plan to enable the projects to become effective.”
Historic debt level
The nation’s external debt stock could hit over $36 billion if the National Assembly approves the $4.054 billion new borrowing request presented by the executive to the federal legislators, yesterday.
President Obasanjo had to launch a relentless debt relief campaigned for Nigeria when in 2004 the nation’s debt external stood at $36 billion, with the country spending more on interest payments than on health care and education, put together. This debt relief effort yielded fruit on June 29, 2005, when the Paris Club and Nigeria agreed on a US$18 billion debt relief package, with the country paying off the balance to free the nation.
Official figures of the Debt Management Office put the external debt stock at $32. 859 billion, as of March 31, this year.
Since then, the National Assembly has approved an $8. 325 billion new borrowing plan for the President Muhammdu Buhari, administration to enable it to implement the 2021 budget.
That approval followed the consideration of a report on the 2018-2020 External Borrowing (Rolling) Plan by the Committee on Local and Foreign Debt.
Chairman of the Committee, Senator Clifford Ordia, had explained that the borrowing was imperative due to the shortfall in the country’s annual revenues in relation to the need for rapid infrastructural and human capital development, adding, “we have had to pass deficit budget every year, requiring us to borrow to finance the deficit in our budget.”
However, the administration has yet to borrow the entire figure, as approved, as officials of the Federal Ministry of Finance, Budget and National Planning are said to be weighing the options available to the nation, in order to get the best deal, with concessionary facilities being considered as their preference.
It was learnt that the 2018-2020 External Borrowing Plan contained $36.837 billion.
However, only about $7 billion was approved by the Sen. Bukola Saraki-led Senate of the 8th Assembly, in the first instance.
Consequently, the executive was said to have continued to re-present the request to the Red chamber.
For instance, the July approval was obtained after the president re-presented the request for $26.154 billion.
Debt servicing capacity should critical — MudaYusuf
For most analysts, while the reason for the borrowing spree has become worrisome due to the weakening capacity to service the debts.
Dr Muda Yusuf, Economist and former director-general of the Lagos Chamber of Commerce and Industry, LCCI, said: “The growing stock of debt is a cause for concern. Current levels of debt are already at an unsustainable threshold. If over 80 per cent of revenue is used to service debt, then it is about time to slow down on debt accumulation.
“From reports, this request is new as it was not covered in the original borrowing. It is an addendum to the original plan which had already been approved.
‘‘Of course, there is merit in borrowing for infrastructure development, but even at that, the capacity to service the debt sustainably should be a critical consideration. The risk is that at this rate, part of the borrowing will inevitably be used to fund recurrent expenditure. Already, actual revenue can hardly cover the recurrent budget. The risk of ending up in a debt trap is quite high.”
Also commenting, Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham, a Lagos based investment house, said the rate of accumulation of loans by the federal government is becoming unsustainable due to low productivity.
He said: “For transparency, these borrowings should be attached to projects like the Sukuk bond offer. The rate of accumulation of loans is becoming unsustainable due to low productivity. With debt servicing as a proportion of actual revenue almost hitting 100 percent, it calls for serious concern. The exchange rate risk that balloons our borrowings in naira value will also be amplified with continued external borrowings.”
FG should leverage capital market —Oni
Reacting as well, Chartered Stockbroker and Chief Executive of Sofunix Investment & Communications, Mr Sola Oni said: “At present, over 90 per cent of Nigeria’s revenue goes for debt servicing and the bulk of the debt is appropriated for recurring expenditure. Rather than plunge Nigeria into bankruptcy due to debt albatross, the federal government should leverage the capital market to access long term funds to finance capital expenditure.
‘‘This option has a strong prospect to accelerate economic growth and development by creating enabling environment for businesses to spring up with multiplier effects on employment and increased total output. There are other creative means to raise funds such as selling of moribund government assets to the private sector operators.”