How FG Spent $14.37bn to Service World Bank, Other Debts in 8 Years

Kayode Tokede

Amid fears that debt services and payments is constituting a major threat to Nigeria’s economy, it has emerged that the federal government spent a whooping $14.37billion in eight years under President Muhmmadu Buhari administration to settle International Monetary Fund (IMF), among other foreign debt obligations.

The latest “international payment” data released by the Central Bank of Nigeria (CBN) showed that from 2015 to 2022, the amount paid on foreign debts have continued to increase with 2022 hitting second highest in the period under review.

The debt services and payments, it was learnt, were made on behalf of the federal government alone excluding 36 states and the Federal Capital Territory (FCT).

Extract from the data revealed that the CBN debt services in 2022 increased to $2.49billion, representing an increase of 17.17per cent from $2.13 billion in 2021.

The 2022 month-on-month breakdown showed that the CBN in January spent $101.3 million to service debts; it increased by 219.71 per cent to $213.3 million in February; and increased further to $345.36 million in March.

In April 2022, the CBN disclosed that $82.99 million was spent on debt service; it moved to $178.11 million in May, and closed June at $336.85million in June.

In July, the amount used to services debt hits highest figure at $426.18million, the highest and in August, it dropped to $51.15million.

For September and October the figures reported by the CBN were $112.5 million and $262.69million, respectively.

However, between November and December of 2022, the CBN revealed that $225.4million and $45.64million was spent in debt services and payments respectively.

The data revealed that 2021 has the highest debt services and payments, a whopping sum of $5.77billion and this was year the federal government borrowed N7.3trillion to bridge its budget deficit.

Specifically, the federal government’s actual expenditure of N11.69 trillion vastly exceeded its 2021 generated revenues of N4.39 trillion.

The government has been running a fiscal deficit for at least 11 years; however, the 2021 deficit is simply remarkable and is 22 per cent higher than the N5.98 trillion deficit recorded in 2020.

The data further revealed the CBN withdraw $1.34 billion in 2019 for debt servicing and payment and $1.47billion in 2018.

THISDAY gathered that between 2015 and 2017, the CBN spent a sum of $1.17billion on debt services and payments with an average $444.77million spent in 2017 alone.

As Nigeria’s debt profile continued to snowball and its attendant cost worrisome, analysts have stressed that debt is at the highest level and is worrisome at 83 per cent debt service-to-revenue ratio.

The Debt Management Office (DMO) had reported that if other sovereign debts, including the Ways and Means Finances, are fully captured, the debt stock could jump to N77 trillion.

The Director-General of the Debt Management Office (DMO), Ms Patience Oniha recently in Lagos argued that debt service to revenue was extremely high, an indication that urgent steps needed to be taken to boost nation’s revenue and enhance public debt sustainability.

 According to her, “Nigeria’s public debt stock has grown consistently over the past decades and even faster in recent years. Consequently, debt service has continued to grow. Nigeria’s low revenue base compounded by dependence on crude oil resulted in budget deficits over the past decades. Efforts at increasing non-oil revenue are yielding positive results.

“Dependence on borrowing and low revenue base are now threatening debt sustainability. With a low debt to GDP ratio, Nigeria’s debt service to revenue ratio would have been low if revenue was strong,” Oniha said.

She added that most countries around the world have placed more emphasis on taxation as a principal source of funding for the government while reverse is the case in Nigeria.

Speaking at the last Monetary Policy Meeting (MPC), the governor of CBN, Mr. Godwin Emefiele in his personal statement said, the domestic shocks originate from the persisting insecurity inhibiting economic agents; rising cost of debt and debt servicing; deteriorating fiscal balances; increased spending as the 2023 general elections approach; and continued uptrend in inflationary pressure.

On his part, the Director, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf explained that the capacity to service the current stock of debt raises serious sustainability concerns.

According to him, “For instance, the debt service provision in the 2023 budget was a whooping N6.3 trillion, which includes the N1.2 trillion interest payment on Ways and Means financing by CBN.  The debt service is also 60 per cent of projected revenue 29per cent of projected total expenditure.

“Meanwhile, the actual revenue has     historically been less than budgeted revenue. This implies that the debt service to actual revenue ratio would be much higher by the end of the fiscal year. The debt situation does not reflect a healthy fiscal position and should be a cause for concern. With the weak revenue performance and the growing recurrent expenditure, the capacity to fund capital projects has become severely constrained.

“The opportunity costs of high debt service for the economy and citizens are very high as the economy is denied desired funding for critical social and economic infrastructure projects which are needed to build a globally competitive economy and advance the welfare of citizens. There is also the crowding effect of the private sector in the domestic credit market.  The government plans to borrow N7 trillion from domestic financial markets in 2023 to fund its fiscal deficit.

There is also the exchange rate risk inherent in the exposure to mounting foreign debt which we need to worry about. As the currency depreciates, the burden of servicing foreign debts would intensify, especially when productivity in the economy remains low. Government debt management strategy has been recently reviewed to reduce the foreign component of the debt stock and also further reduce exposure to commercial debts.  It was a move in the right direction.  Commercial debts are the costliest components of external debt, and the Euro bond is one of such debts. The less commercial debts we incur, the better for debt sustainability. Concessionary debts are generally much better.

“These are debts from multilateral institutions such as the African Development Bank, the World Bank, IMF, and Bilateral debts. Their interests’ rates are extremely low, and their tenure are quite long. Most often, these concessionary debts are specific to projects, which reduces the risk of inappropriate public expenditure. This Fiscal Responsibility Act underscores this position. All these underline the imperative of reforms to reduce recurrent expenditure, especially the cost of governance. It is critical as well to ensure right policy choices to attract equity domestic and foreign private sector capital for economic and social infrastructure financing.”

He noted that reducing the burden of debt and the risk of a debt trap also demands appropriate polices to incentivize private investments.

He added, “Investment growth would boost economic growth, enhance the growth of revenue, and reduce the prospects of fiscal deficit and consequent borrowing.  Creating an enabling environment for private investment is therefore very critical to reducing the burden of public debt.

“Economic reforms are imperative to ease the fiscal burden of government in the provision of infrastructure. Bankable infrastructure projects should be identified for private sector investment. but this should come with the right incentives, especially around the minimization of risk exposure by the private sector.

“Quality of government spending and right expenditure priorities are crucial for the attainment of fiscal sustainability by the government. There is need to address corruption risks in government projects and general government expenditure as well.”

Analysts at Afrinvest in a latest report said, “Equally worrisome, the debt-service-to-revenue ratio, a measure of liquidity remains disproportionately high at 83 per cent as of Q3:2022. Sadly, economic sabotage has robbed Nigeria of the windfall gains from the oil price rally in 2022. Based on our estimate, the debt service-to-revenue ratio could touch 91.8per cent by year-end.”