The seeming voracious appetite for borrowing by the Federal Government (FG), undertaken in the past 5 years has continued to remain a cause for concern to many, including financial experts, Nigerians and analysts.
As at the end of 2019, the FG had racked up about $67 billion – some N22 trillion – in debt, according to data from the Debt Management Office or (DMO).
With about 35 percent of the loans taken externally and still counting, experts have noted that the funds sourced as loans intended to be injected in capital projects are often spent on recurrent expenditure where there is high presence of corruption and is mainly the reason for little or no results with negligible impact felt by Nigerians.
According to BudgIT 2019 report, Nigeria’s debt service to revenue ratio has hit over 60 per cent relative to 22.5 per cent threshold advised by the World Bank; which means for every N100 earned by the government, N60 is used for debt servicing, leaving government with N40.
Reports from the DMO show that, Nigeria’s debt, at the end of March 2015, stood at N12 trillion.
At the end of June 2015, this debt had risen slightly to N12.1 trillion.
By the end of June 2018, total public debt had almost doubled to N22.4 trillion. The debt office said the increase comprised of a $2.5 billion Eurobond issued by the government in February 2018.
This took Nigeria’s total debt to US$73.2 billion, using the Central Bank of Nigeria’s 2018 exchange rate of N305.
In any case, the DMO justified the borrowings in its 2017 report on Nigeria’s national debt, stating that the country’s total public debt stock is relatively low vis-à-vis the country’s GDP, the report also added that increased funding requirements needed to sustain economic recovery, address the huge infrastructural deficit, as well as meet budget financing requirements, would entail enormous funding resources, including more borrowing.
The worry about FG borrowing analysts have further argued is largely about transparency and not that borrowing is bad.
“If you take a loan based on infrastructural gap, the people should be able to see and feel the impact of the loan and see the gradual and consistent close in the infrastructural gap,” said Joe Femi Dagunro, Ex -President, Nigerian-German Business Group.
He explained: “If our country’s debt service to revenue ratio, which is about 60 per cent and our growth rate, is about two per cent, there is a good reason for concern. I want the government to focus on some key areas of infrastructural development such as electricity, health, agriculture, road construction, power an
d maintenance.”
The ratio is forecast to rise to 75 percent.
Dagunro called on the FG to be transparent about its borrowing and explain full details of the loans and what they have been used for.
Prof Olufemi Saibu of the economics department at the University of Lagos focuses on development macroeconomics and public finance.
“The debt profile is high and now getting to the red line” Saibu said. “The problem is that the debt cannot continue to increase; there must be a check on it. And the question is, what are they using the debt for? The quality of projects, productivity and impact of the projects are what matters.”
Former Deputy Governor, Central Bank of Nigeria, Obadiah Mailafia also commented on the rising FG borrowing, during an interview on channels, saying there is nothing wrong with borrowing but the purpose must be well spelt out to achieve a well-defined objective.
“You can’t be using N5 out of every N10 you earn to service your debt because your GDP to debt ratio is one of the lowest in West Africa. Who are you competing with in West Africa. We should be competing with Brazil, Indonesia. Those are our competition. we don’t have a debt crisis yet, but that is where we are heading too”.
“How can we be borrowing for feeding and recurrent expenditure. Our infrastructure deficit is very huge vis a vis dwindling revenue,” he said.
“From 2014 at N11trillion to N22.4 trillion in 2018, what we have is a 100% jump. If you recall in 2005, when we settled the Paris club debt, our total debt stock was about $36 billion and today we have double that figure already. That worries me greatly,” Mailafia said.
Chairman, Chartered Institute of Bankers of Nigeria, Abuja chapter, Prof. Uche Uwaleke said the FG borrowing strategy of increasingly resorting to external borrowing to fund budget deficit finds explanation in the increasing cost of servicing domestic debt.
This disposition, he added accounts for the growing quantum of foreign debts contracted on commercial terms in recent times with much emphasis on tapping the Eurobond markets.
“Nevertheless, the preponderance of fragilities in the Nigerian economy warrant a cautious approach to new external borrowing – one that is shy of non-concessional loans contracted purely on commercial terms such as Eurobonds. Indeed, the country can only hope that there are no more currency shocks in the near future,” Uwaleke said.
Well hmm