WALKING INTO ANOTHER DEBT TRAP

Government should borrow with discretion

In March this year, the National Assembly approved a foreign loan of $22.7 billion under the 2016-2018 Medium Term External Borrowing (Rolling) plan. About $17.06 billion of the total loans will be provided by China’s Eximbank, while the World Bank, African Development Bank, Islamic Development Bank and German Development Bank are also in the mix of the new borrowings. Although it remains unclear if the country is also going ahead with its plan to sell a $3.3 billion Eurobond this year to refinance existing maturing loans, the National Assembly last week approved for President Muhammadu Buhari a loan of $5.5 billion to finance the current budget as well as address socio-economic realities foisted by the COVID-19 pandemic.

While borrowing is inevitable, especially at a period like this, there are serious concerns at the rate these debts are being piled up in Nigeria. Aside the fact that the funds are not being deployed into projects that generate income, borrowing should not be done in such a way to mortgage the future of the country and its sovereignty, as we now see with some African countries and China. In the revised 2020, budget, debt service provision rose from N2.453 trillion to N2.678 trillion. Debt service provision was also increased from N2.453 trillion to N2.678 trillion and the federal government is to fund the fiscal plan with N5.58 trillion. As of 31st December 2019, Nigeria’s total debt stock stood at about N27.4 trillion and in the past few months, more have been added.

Experts within Nigeria and multilateral lenders have continued to advise against increased borrowing and mounting debt amid plummeting revenues. The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has in recent times sounded notes of caution that the federal government should not hide under the mantra of debt-to-gross domestic product (GDP) ratio for debt accumulation. In its 2020 Macroeconomic Outlook, the Nigeria Economic Summit Group (NESG) also stated that “Nigeria’s mounting debt profile is a major concern despite the country having about $900 billion worth of dead capital in properties and agricultural lands (PwC Nigeria, 2019).”

While we understand the funding challenge that has now been compounded by COVID-19 and the collapsed oil prices, the federal government must understand that we cannot borrow our way into prosperity. To tackle the revenue challenge, the NESG has reaffirmed the recommendation of several other stakeholders that the federal government should consider unlocking finance and economic growth by the commercialisation or privatisation of many dead capital/assets. They include the National Arts Theatre; the national stadia in Lagos and Abuja; Tafawa Balewa Square, Lagos; and the Federal Nursing Hospital, Ikoyi, Lagos, and several others.

We hope the federal government will consider the counsel of the MPC of CBN and other stakeholders that there is a need to build fiscal buffers against the growing impact of the country’s high debt profile. Sadly, there are bigger challenges in many of the 36 states. The current governors on assumption of office complained of inheriting heavily indebted states on account of funds taken from the capital market by their predecessors. But many of these governors have also gone to secure their own loans which they also expect future governments in their states to repay. Aside the fact that many of the states can hardly meet their routine obligations after servicing their monthly debts, most of the loans were not deployed to tangible projects.

While it is understandable that the federal government would borrow to bridge the huge infrastructural gap in the country, there are growing concerns about repayments. It is therefore incumbent on the authorities in Abuja and the 36 states to reflect on the implications of the debt burden on the future of our country.