As Buhari Leads Nigeria into Second Debt Trap…

Economy

It has been a season of borrowings for the Buhari administration. President Muhammadu Buhari’s government assets that it faces a revenue challenge and its most ‘innovative’ way to surmount the challenge is to borrow its way through. The administration has more than tripled the country’s external and local debt portfolio and is set to keep on expanding the country’s debt, unconcerned about its short- and long-term impact on the economy. Most Nigerians do not see the rationale for the loans, as their impact have not been felt in any impressionable way. For many experts, it is déjà vu all over again; a second debt trap being foisted on Nigerians by Buhari. Nosa James-Igbinadolor reports

The President Muhammadu Buhari administration came into office on May 29, 2015, high on promises of turning everything around for good.

As at the end of the former President Goodluck Jonathan administration in the second quarter of 2015, Nigeria’s total external debt stock stood at $10,316 billion. The country’s GDP was $486.8 billion and the unemployment rate was 8.19 per cent.

And then the borrowing spree started. Intoxicated on foreign loans, Buhari has consistently justified the build-up of loans as the only credible route his government has to fund infrastructure projects.

At a meeting with members of the Presidential Economic Advisory Council (PEAC) in September, last year, Buhari posited, “We have so many challenges with infrastructure. We just have to take loans to do roads, rail and power, so that investors will find us attractive and come here to put their money.”

On April 21st this year, the Senate gave the federal government the nod to borrow a total of $2.7 billion out of the $5.5 billion external borrowing request sent to the National Assembly by Buhari in May last year.

The external loans comprise $1.5 billion, to be sourced from the World Bank, and 995 million Euros ($1.2 billion) from other international agencies, for the federal and state governments.

If the loans are accessed, it will jack up Nigeria’s total public debt, which as of December 31, 2020 stood N32.915 trillion ($84.574 billion), according to data from the Debt Management Office (DMO).

Six years of unabridged borrowing has neither grown the economy nor brought about more jobs. On the contrary, that Nigerian economy in the last six years has been characterised by the worst economic indices in 40 years. The more the Buhari administration borrows, the more the economy descends into ill-growth and retrogression.

From a GDP of $486.8 billion in Q2 of 2015, the country’s Gross Domestic Product has fallen to $442 billion, with unemployment currently standing at over 33 per cent, the second highest in the world. More than one in every two Nigerians in the country’s labour force is either unemployed or underemployed. What this means is that the country is not producing enough goods and services to suck in more people into employment

There is a growing belief that the administration of Buhari has been particularly reckless in its greedy hustling for loans from every part of the world. As aptly noted by a national daily last year, Buhari’s administration has shattered “all previous borrowing records. The Debt Management Office figures show that total public debt stock – federal, states; domestic and external – was N12.35 trillion in September 2015, rose to N16.88 trillion a year later, N20.37 trillion in September 2017, N26.21 trillion by September 2019 and N31 trillion this year. Ahmed projects it to reach N38.6 trillion by December 2021. External debt in September 2015, four months after Buhari assumed office, was just $10.61 billion, but has been growing exponentially, to $15.35 billion in 2017, $26.94 billion in 2019 and $31.47 billion by June 30, 2020. Worse is that, beyond claiming to pay public employees’ salaries, Nigerians see little to justify the debt amassed on their behalf.”

As Buhari’s government sinks the country into a new debt trap with the active complicity of the leadership of the National Assembly, the question most Nigerians want answered is, what have Buhari and his government been doing with all the elephantine loans they have been acquiring from across the world?

It was the Vice Chairman of the Senate Committee on Foreign and Local Debts, Senator Muhammad Enagi, who in March last year, agreed that, “The big question on the minds of average Nigerians aware of this fact is; what did we do with the money? In other words, where did the money go? What do we have to show as a people for these huge debts?”

He explained that borrowing had always served as veritable financial platforms for many countries of the world in running their economies, but judiciously utilising such loans for intended projects and servicing the debts appropriately have also been problems for developing countries like Nigeria. According to him, realities on the ground in the country in terms of required infrastructures and debts accumulations between 2006 and now appear disjointed.

The very reason, he explained, many Nigerians are worried whenever they hear that their government is seeking one loan or the other.

The debt question in Nigeria has been a repeated issue that borders on the structure of the economy, behaviour of the governing class and pervasive official corruption. It is even more apparent and disturbing now when the economy is totally comatose, and the socio-political and security landscape blemished by varying scales of violence that push back ferociously against any form of development.

The country’s current outstanding loans amount to about a quarter of its economic output, and Africa’s largest oil producer currently spends more than half of its revenues servicing debts. The International Monetary Fund had earlier warned that without major revenue reforms, the debts could rise to almost 36 per cent of GDP by 2024, with interest payments taking as much as 75 per cent of government revenue.

The World Bank’s 2018 Africa’s Pulse report, noted that average public debt as a percentage of GDP in sub-Saharan Africa rose from 37 to 56 per cent between 2012 and 2016. By 2018, 40 per cent of sub-Saharan African countries were at high risk of debt distress – double the proportion recorded just five years earlier. With a growing share of these debts being owed to China – a country critics have accused the government of extending unsustainable loans – fears are mounting that a new debt crisis could be just around the corner.

In March last year, Nigeria’s Senate approved President Muhammadu Buhari’s plan to borrow $22.7 billion from external creditors to finance infrastructure projects. Lawmakers gave their endorsement to the government during Thursday’s proceedings in the capital, Abuja, to seek the funding expected from the Islamic Development Bank, the African Development Bank, the World Bank and creditors in China, Japan and Germany.

The President said he will use the money to expand the railways, build a new hydro power dam and fund special intervention projects across the West African nation, according to a letter sent to the parliament in November.

Nigerians and experts have consistently pushed back against record upsurges in government borrowing, a portentous sign for policy makers trying to revive economic growth with fiscal stimulus. While the government has deployed extraordinary amounts of stimulus, there is no assurance that all the spending will be enough to get the economy out of the woods. As a matter of fact, six years of unprecedented borrowing by the Buhari administration hasn’t grown the economy an inch, rather, the economy consistently falls into recession and continues to be utterly anaemic and unresponsive today.

With debt becoming a growing burden on government revenues, Amara Ekeruche, a research associate at the Centre for the Study of the Economies of Africa, told World Finance that an important factor to consider is the opportunity cost of loan repayments – in other words, identifying which sectors are missing out on funding. “In Nigeria, for instance, 60 percent of our government revenues go towards debt servicing,” Ekeruche said. “To contextualise this, imagine that an individual making £1 [$1.27] pays £0.60 [$0.76] to creditors.

“I think that critical development sectors are being underfunded as a result of the large amount going towards servicing debt. Education and health sectors are critical sectors for us, particularly since we have a very young population. Failure to pay sufficient attention to these sectors will have long-term consequences.”

It is unlikely that Nigeria will not enter a new debt trap, as the Buhari administration has shown itself to be unconcerned about the quality of loans it gets from abroad and even more blasé about the opinions of most Nigerians. The government has been more concerned with accessing large tranches of funds to spend on infrastructure projects in order to plant a legacy. Long consigned by Nigerians as underperforming and highly deficient in economic management, the current administration has thrown caution to the wind in hustling for more loans at a time when the nation’s capacity to meet its debt obligations is getting increasingly suspect.

What is increasingly obvious, is that Buhari and his administration will continue to beg for and grab every loan that comes its way. It is unconcerned about how the debts will be paid back. As a matter of fact, the current administration has absolutely no idea, short or long term plan or strategy that will support the repayment of these loans in a way that does not impair future economic growth and development post-Buhari.

This blasé attitude to economic management and credit acquisition gives fillip to former President Olusegun Obasanjo’s understanding in 2005 after gaining the country debt relief from international creditors, of how we got ourselves into the first debt trap. “How did we get to the point where our debt burden became a challenge to peace, stability, growth and development? Without belabouring the point, we can identify political rascality, bad governance, abuse of office and power, corruption, mismanagement and waste, misplaced priorities, fiscal indiscipline, weak control, monitoring and evaluation mechanisms, and a community that was openly tolerant of corruption and other underhand and extra-legal methods of primitive accumulation.”