- President, Bola Tinubu seeks HoA approval for fresh loan
- Nigeria loan profile hits N87tn in three months
- IMF, Experts express concern as Nigeria services loan with 96.3% revenue
On November 28, 2023, President Bola Ahmed Tinubu sent yet another external loan request to Nigeria House of Representatives for approval.
According to a letter from the president read on the floor of the House by Speaker Abbas Tajudeen, on Tuesday, the Federal government is seeking to borrow $8.6 billion and €100 million.
WITHIN NIGERIA learnt that the borrowing plan includes $1 billion from the African Development Bank and $1.5 billion from the World Bank group.
President Tinubu said the 2022-2024 external borrowing rolling plan was approved by the previous administration of President Muhammadu Buhari on 15 May 2023.
“The Honourable members may wish to know that the past administration approved the 2022 -2024 borrowing plan at the Federal Executive Council held on 15 May 2023,” the letter reads in part.
According to President Tinubu, the loan would be used to execute projects which “cut across sectors with specific emphasis on infrastructure, agriculture, health, education, water supply, roads, security, and employment generation as well as financial management among others.”
Tinubu stated that the borrowing becomes necessary “considering the huge infrastructure deficit in the country and the enormous financial resources required to bridge the gap in funding infrastructure in the face of dwindling financial resources.
“Given the nature of these facilities and the need to return the country to normalcy, it has become necessary to request the House of Representatives to consider and approve the 2022-2024 external abridged borrowing plan to enable the government to deliver its responsibilities to Nigerians through expedient disbursement and efficient project implementation,” the letter reads.
Recall that President Tinubu had earlier in November sent a borrowing plan to the National Assembly for approval. The letter contained approval of $7.8 billion and €100 million.
The new plan shows that the government has now increased its borrowing plan. The president in his letter on Tuesday appears to have increased a component of the loan from $7.8 billion to $8.6 billion.
Federal debt stock
According to the National Bureau Statistics (NBS), Nigeria’s public debt stock which includes external and domestic debt rose to N87.38 trillion (US$113.42 billion) in Q2 2023 from N49.85 trillion (US$ 108.30 billion) in Q1 2023.
This, according to NBS, indicates a growth rate of 75.27 per cent on a quarter-on-quarter basis.
The statistics office said total external debt stood at N33.25 trillion (US$43.16 billion) in Q2 2023, while total domestic debt is at N54.13 trillion (US$70.26 billion).
Nigeria’s debt history
WITHIN NIGERIA findings showed that Nigeria’s debt profile dates back to the military era, with not less than seven military generals at the helm of affairs in the country.
However, with the start of the fourth republic saw an end to the decade-long military rule in the country.
By and large, it is worthy to note that just an individual or business man, borrowing itself is not a new thing in governance, and almost all countries in the world borrow to improve their economies and also carry out their social contract with the people. When eyebrows are raised, borrowing becomes high and continues to rise while the economy suffers.
In any case, the Obasanjo government in 1999 met $28 billion in foreign debt (incurred during the military regime) and he left with an external debt of $2.11 billion, which includes an $18 billion write-off debt owed to the London-Paris club.
The Yar’adua years, though short-lived, took the external debt to $3.5 billion, while the domestic debt was at N5.62 trillion. The Jonathan-led government added $3.8 billion to take the country’s total external debt to $7.35 billion, while the domestic debt was at N8.8 trillion.
Nevertheless, in the last eight years of Buhari’s reign, the country’s external and domestic debt has greatly increased, leading to caution from different international organizations.
Debt increase under President Buhari
Nigeria’s debt profile rose every year under Buhari. According to the Debt Management Office (DMO), Nigeria’s external or foreign debt is categorized under multilateral (International Monetary Fund (IMF), World Bank Group, African Development Bank Group), bilateral (China, France, Japan, India, Germany), commercial, and others.
However, this means that most of the loans under the Buhari government were from those organizations, countries, and bodies.
According to reports, at the end of his tenure, the total debt has risen to an unprecedented $172 billion, which the Bola Ahmed Tinubu inherited.
DMO report on Nigeria indebtedness
The Debt Management Office (DMO) has said that Nigeria’s total public debt rose to N87.38 trillion in the second quarter (Q2) of 2023, recording an increase of 75.29 percent.
This represents a N37.53 trillion increase in total public debt, compared to the N49.85 trillion reported at the end of the first quarter (Q1) of the year.
In its latest report, the debt office said the surge was occasioned by the N22.71 trillion ways and means advances obtained by the federal government from the Central Bank of Nigeria (CBN).
“Nigeria’s total public debt stock as at June 30, 2023, was N87.38tn ($113.42bn). It comprises the total domestic and external debts of the Federal Government of Nigeria, the thirty-six states, and the Federal Capital Territory,” DMO said.
“The major addition to the Public Debt Stock was the inclusion of the N22.712 Trillion securitized FGN’s Ways and Means Advances.”
The DMO said the federal government received the approval of the national assembly (NASS) to securitise the CBN loan in May 2023.
CBN’s ways and means advances is a loan extended to the federal government for short-term financial emergencies.
The CBN Act stipulated that the loan issued shall not exceed five percent of the previous year’s revenue generated by the federal government.
But it was raised to 15 percent in May after Muhammadu Buhari, the former president of Nigeria, requested securitisation of the loan to reduce the interest paid on the principal and extend its tenure.
The total public debt was at N49.85 trillion in Q1 2023 because the DMO did not include the ways and means loan, which is an accumulation of the federal government’s debt to the CBN.
Needless to say Nigeria is currently under heavy burden of debt.
In a country where debt servicing greater percent of the revenue speaks volume.
According DMO, the country uses 96.3% of its revenue in debt servicing.
Reactions of DMO
The debt office said the securitisation of the central bank loan after receipt of requisite approvals, had enabled its inclusion in Nigeria’s total public debt profile.
“This development, which was welcomed by development partners amongst others, has improved debt transparency and led to the reduction in Debt Service costs associated with the Ways and Means Advances” the office said.
DMO said new borrowings by the federal government and the subnationals from local and external sources, also jerked up the total public debt. The increase surpassed the N77 trillion projected earlier in January by Patience Oniha, the director-general of DMO.
Meanwhile, out of the total debt, according to the latest DMO report, the total domestic debt accounted for 61.95 percent or N54.13 trillion and total external debt contributed N33.25 trillion, which represents 38.05 percent.
This is a significant increase compared with Q1 figures, which showed domestic debt was N30.21 trillion and external debt was pegged at N19.64 trillion.
However, the DMO believes that the reforms already introduced by the present administration and those that may emerge from “the recommendations of the Fiscal Reform and Tax Policies Committee, are expected to impact debt strategy and improve debt sustainability”.
The debt office, had in May, urged the federal government to resolve its revenue problem to increase turnover, saying this would reduce the dependence on debt to fund the budget deficit.
However, it is worthy to note that the rising debt of the country is a cause for concern, as the World Bank has warned that the country could spend almost 100% of its revenue on debt servicing in a few years.
Reactions on the loan request
However, WITHIN NIGERIA in an exclusive chat with some persons said the loan request should be turned down by the Federal government.
Rather, the government should find alternative way of financing the budget.
Chinecherem Eze told our reporter that the economic situation in the country is very unfortunate.
“Our government seems to have run out of ideas on how to handle capital projects in this country.
“They should find an alternative way of financing the projects other than continuous and habitual borrowing.”
Miss Eze who is a student of University of Nigeria Nsukka stated that the negative impacts of borrowing will weigh down the country’s economy.
In his own reaction, a political economist, Adefolarin Olamilekan, advised the federal government to seek new ways to mobilise resources domestically and jettison the idea of foreign loans.
Adefolarin told news men that the loan would further raise the country’s debt stock just as he wondered if the government would be going back on its resolve to avoid borrowing to fund the budget deficit.
He said: “Unfortunately, with the current debt burden on the nation alongside other implications on our foreign reserves, the depreciating naira and long term impact on economic growth. Instructively, the Tinubu APC government needs to refocus its fiscal strategy policy toward domestic revenue generation to avoid proclivity for foreign loans just like successive governments in the past.
“Nigerians would not be surprised, if the federal government eventually secures the loan. The sad part of it is the promise made by President Bola Tinubu when he inaugurated the presidential committee on fiscal policy and tax review some months back.
“The president maintained that we look inward to generate funds. The question is what has happened to the plan of sourcing funds domestically, that the Tinubu administration like his predecessor is now seeking for loan.”
He urged the government to “address the challenges of budget gaps and deficit, noting that failure to adhere to due process, transparency and budget corporate governance pushed the country to the difficult position it now finds itself in.”