The Federal Government’s decision to persist with borrowing funds, despite the escalating and unsustainable debt burden, is causing apprehension among financial experts and various stakeholders.
According to the Debt Management Office (DMO), Nigeria’s total public debt had surged to N87.38 trillion by the end of the second quarter of the current year.
This signifies a significant increase of 75.29 percent, or N37.53 trillion, when compared to the N49.85 trillion recorded at the end of March 2023.
Further data from the DMO reveals that Nigeria’s total domestic debt stands at N54.13 trillion, while its total external debt is N33.25 trillion. Domestic debt accounts for 61.95 percent of the total debt, with external debt making up the remaining 38.05 percent.
The DMO, in its 2022 Debt Sustainability Analysis Report, cautioned that the Federal Government’s projected revenue of N10 trillion for 2023 would not be sufficient to support additional borrowings.
It expressed concern that the projected government debt service-to-revenue ratio of 73.5 percent for this year is exceedingly high and poses a threat to debt sustainability. The report emphasized that the government’s current revenue profile cannot sustain higher borrowing levels.
“Of course, this is true, the debt burden of Nigeria is clearly unsustainable right now and the government needs to slow down on borrowing,” the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, stated.
However, in spite of the apprehensions voiced by both the DMO and analysts regarding the nation’s debt, a recent October report by the local media, revealed that the Federal Government is presently in discussions with the World Bank for a new $1.5 billion loan.
According to the report, this loan, referred to as HOPE (Nigeria Human Capital for Opportunities and Empowerment), derives its name from information acquired from the website of the Washington-based institution.
It stated that the objective of the loan was “to strengthen systems for improved delivery of basic education and primary health services in participating states.”
The loan is meant to be implemented in 2024 pending approval by the board of the World Bank Group. The report also stated that there was another loan titled, ‘Nigeria Macro-Fiscal Reforms for Economic Stability and Economic Transformation’.
The report mentioned that there are additional loan projects currently under discussion. These encompass a $300 million project aimed at addressing the needs of internally displaced persons and host communities, a $500 million project to expand rural access and agricultural marketing, a $750 million project focused on increasing distributed access to renewable energy in Nigeria, a $700 million project designed to support sustainable power and irrigation in the country, and a $500 million project for accelerating resource mobilization for reforms (PforR).
The outcome of these discussions will determine whether these loans will be approved or rejected. According to the report, Nigeria has secured a total of $1.95 billion in loans from the World Bank during the first four months of President Bola Tinubu’s administration.
These loans include, a $750 million loan approved on June 9, 2023, to enhance Nigeria’s power sector, a $500 million loan approved on June 22, 2023, to support women’s empowerment initiatives in the country and a $700 million loan approved on September 21, 2023, to improve adolescent girls’ education and empowerment.
Commenting further on the development, Yusuf said, “We cannot continue like this. Our debt level has reached a point now that is clearly unsustainable. You know our debt profile now is over N87tn, and the DMO has added the Ways and Means advances that were securitised. So, the thing has jumped to over N87tn.
“And the debt service burden is still extremely heavy; almost 100 per cent of our revenue. So, the debt situation is extremely bad. Therefore, this is not the time to borrow for projects that cannot significantly add value to productivity.”
Yusuf pointed out that the administration of former President Muhammadu Buhari negotiated some loans with the World Bank before he left office. He, however, stated that if the current government must borrow, it should not be for servicing recurrent expenditures, but must be targeted on capital projects that would attract income.
“Personally I don’t think this is the right time to be borrowing that kind of money (the $1.5bn loan). We need to be very careful about the way we go about borrowing, given the enormity of the debt service burden, the current size of our debt, and our very limited capacity to service both domestic and external debts.
“If we must borrow, it should be something that can support real productivity in the economy. I’m not saying education is not important, but we should be looking at more structural issues. You are dealing with an infrastructure deficit and a problem of logistics, these things make productivity to be extremely low, thereby affecting the competitiveness of our economy. So, they are much more fundamental,” the CPPE boss stated.
On Ways and Means financing of fiscal deficit, he said, “Ways and Means finances of the Central Bank of Nigeria must be kept within statutory limits to avoid the damaging impacts of high-powered money on the macroeconomic environment. The experience of the last few years must not be allowed to repeat itself.”
Also commenting on the issue, a former President of the Association of National Accountants of Nigeria, Dr Sam Nzekwe, wondered how the government would be able to raise funds to pay the additional N35,000 that it promised civil servants.
“The Tinubu government has not settled down to actually see the direction the economy is going. They have promised to pay an additional N35,000 to each civil servant. But the question is where will they get the money? That announcement has no backing of any appropriation. So, one may think that maybe they will come up with an appropriation to cover that. Several other pronouncements had been made as well, without any appropriation backing them.
“Now all these things require money, but where are they going to get money to finance them? Is it by borrowing? If you borrow to finance all these things, it means you are now financing recurrent expenditure, which is too bad because it is not taking us anywhere,” Nzekwe stated.
The former ANAN president stated that though he was not totally against the act of borrowing by the government when such funds were acquired, they should be deployed into capital projects.
“I am not totally against borrowing, but it should be for capital development. Is it to finance roads, infrastructure, or which capital project? But if the money goes to recurrent expenditure, then it is too bad,” he stated.
On his part, the Secretary of the Independent Petroleum Marketers Association of Nigeria, Abuja-Suleja, Mohammed Shuaibu, said the government would have reduced its borrowings had it been Nigeria’s refineries were working.
“Recently, the NNPCL said it secured a $3bn loan to help the local currency and boost activities in the oil sector. There wouldn’t be a need for such a level of borrowing if our refineries were working. The government should work hard to get our refineries working. It will save Nigeria a lot of funds. It will reduce the pressure on our forex. It will create jobs and guarantee the supply of refined products. Marketers will stop chasing dollars for imports.
“The gains are enormous. So, if they really want to reduce the level at which they go about borrowing billions of dollars, one sure way to help in doing that is by ensuring that our refineries are brought back on stream fast,” Shuaibu stated.
He said it was high time the Federal Government realised that the huge foreign exchange expended in importing refined petroleum products was not only depleting the country’s forex but was affecting revenues accruable to both investors and the government.
“So as we strive to cut down on our excessive borrowing as a country, we must also strive to reduce the amount of forex that we send out to other nations through the imports of petroleum products,” the IPMAN official stated.
Offering his perspective on the issue, Chief Chinedu Ukadike, the National Public Relations Officer for IPMAN, highlighted that the government’s failure to address certain critical issues in the oil sector has had adverse effects on the country’s income.
He further noted that this situation has been a contributing factor to the ongoing borrowing by the government and emphasized the importance of addressing these challenges to enhance the government’s financial stability.
“Had it been our oil industry is doing well and supplying the required revenue, I don’t think the government would be borrowing that much. We import refined petroleum products and spend billions of dollars on them when we have refineries.
“I remember that in one of my interviews, I encouraged the President to declare a state of emergency in the refineries, so as to ensure that our four refineries in Nigeria begin to work. Nigeria is heavily dependent on the importation of petroleum products.
“You will also agree with me that petroleum products drive the economic activities of this country and any little increase in petroleum product prices leads to galloping inflation, which ultimately affects domestic production and the prices of goods,” he stated.
Ukadike added, “Nigeria has spent trillions of naira on subsidy, billions of naira on logistics, etc. It is very unfortunate that up till now, we’ve not been able to deliver at least one refinery. So, why won’t the government borrow, when we spend trillions importing petroleum products?”
Nonetheless, he encouraged the government to address the issues within the oil sector, as doing so would not only bolster revenue but also result in a decreased reliance on borrowing by Nigeria.
“In the domestic distribution of petroleum products, we’ve lost all the pipelines. We lost those along the waterways; we lost those in the hinterland. It is becoming increasingly difficult for Nigeria to meet its crude oil production quota, which is due to the vandalism of pipelines.
“When you come internally, all our 21 depots are networked to our refineries. We have lines that pump products from refineries to various depots. The way it was designed, pipelines are supposed to send products from the Port Harcourt refinery even up to Makurdi. But now, all those pipelines are obsolete.
“Many of them cannot even pump up to 3km, while these are pipelines that are supposed to supply petroleum products to between 400 and 500km. But right now, they cannot supply to 1km even within the radius of the refineries because of lack of production. All these should be fixed to help increase revenue to both government and private businesses,” Ukadike stated.
In the meantime, the head of CPPE emphasized that the inherent instability in the foreign exchange market has been a source of concern, significantly influencing the difficulties that have led to the government’s heightened borrowing activities.
“But it is not unexpected, given the long period of distortions in the foreign exchange market. Correcting the entrenched distortions would take some time. But in the meantime, the monetary authorities should come up with a sustainable intervention framework to ensure the moderation of current volatility in the forex market.
“We recognise the forex supply limitations, but the system needs to be managed in a way that it will not undermine investors’ confidence. The erosion of confidence triggers speculation and influences expectations which in turn trigger diverse responses among economic players,” Yusuf stated.
Nevertheless, given the array of economic policies pursued by the government, only time will reveal whether it will come to recognize that engaging in further borrowing may ultimately prove detrimental to the nation. Additionally, leadership should remain mindful of the fact that resorting to borrowing to cover recurring expenses can be deleterious to any economy.