Debt traps and the increasing disposition to borrowings

Last Thursday, 10th November, 2021, the Senate approved another set of loan requests by President Muhammadu Buhari to the tune of $16.23 billion and &1.02billion loans. Following the development, it has been projected that Nigeria’s public debt would upon effect rise further to no less than N44.5 trillion. According to report, with the fresh foreign borrowings approved by the Senate, compounding with the $4 billion Eurobond loans, the  external loan component of the national debt would record about 51 per cent increase to $54.87bn from $33.47bn as at the end of June this year; hence increasing the total sum of national debt to N44.5trn from N35.47trn. President Buhari had requested the new foreign loans on the basis of an addendum to the 2018-2020 borrowing plan in September. In July, the National Assembly had approved the sums of $8.3bn and €490million loans as initial requests in the 2018-2020 borrowing plan.

The Chairman, Senate Committee on Local and Foreign Debts, Clifford Ordia,  had on the heels of the approval said the projects for which the funds were requested in the 2018-2020 borrowing plan are ongoing. According to him,  the projects will stimulate a “rebirth of commercial and engineering activities and the consequent tax revenues payable to Government” as a result of which he said “productive activities will increase.” He said: “It will be recalled that the Senate at plenary in July 2021 approved financing for projects as recommended by the committee above, while the committee continued further legislative action and consideration of the outstanding request.Subsequently, on September 15, 2021, the President of the Senate of the Federal Republic of Nigeria read another communication from the President and Commander-in-Chief of the Armed Forces, containing an addendum to the 2018-2020 External Borrowing (Rolling) Plan in the sum of $4,054,476,863, €710,000,000 and Grant Component of $125,000,000 for various projects and same was also referred to the committee for further legislative action.The committee notes that a good number of the projects in respect of which financing is being requested under the 2018-2020 external borrowing (rolling) plan are mostly ongoing projects and programmes in respect of which external borrowed funds have been spent in the past, including loans and grants. The committee found as a fact that out of a sum of over $22.8billion approved by the National Assembly under the 2016-2018 external borrowing rolling plan, only $2.8billion, that is 10 per cenr, has been disbursed to Nigeria. The committee observes that these projects, some of which require additional financing, will have a great multiplier effect on stimulating economic growth through infrastructure development, job creation, poverty alleviation, health care and improve our security architecture.”

Concerns over the Country moving into debt trap have recently been assuming reverberating dimension. Recent calls for caution have been accompanied with danger flag of possibilities of the Country relapsing into the pre-2005 Paris Club exit level. It has been argued that the Country’s public debt is becoming unsustainable.  Argument has been averred that mere considering the Country’s debt-to-Gross Domestic Product (GDP) ratio peg at about 35 per cent as a soft ground for borrowing, may be a trap into debt burdens. This is just as it has been noted that the Federal Government would be sniffing for more borrowing to fund the deficits of the N16.39trn 2023 proposed budget. The deficits of N6.258 trn of the proposed budget as disclosed by the Federal Government will be financed by new borrowings of N5.012trn (of which domestic – N2.506trn and foreign – N2.506 trn); drawdowns on Project-tied Multilateral/Bilateral loans – N1.156trn; and Privatization Proceeds of N90.73bn.” The development has been a ground further deepening the resonance of concern over the prospects of the economy in the face of burdens of debt servicing and the strains of shrinking revenue.

It is glaring that the enlargement of Nigeria’s budget from N4.5trn in 2015 to over N10.8trn in 2021 and the proposed N16.39trn 2022 budget, has come with the elaborate resort to borrowing to cater for the deficits. While the National Bureau of Statistics pegs Nigeria’s debt as at March 2021, to N33.1trillion ($87.24bn),  it is glaring that fresh borrowings not captured in the report have taken course between the said period and now. In July, the Senate had approved a total of $6.18billion (N2.3 trn) External Loan request by President Muhammadu Buhari to fund the 2021 budget deficit. The approval had generated harsh reactions over the fear of the strains debt servicing would pose to the Country’s economy. The heightening of the concern took toll when in August it was disclosed that about 91 per cent of the Country’s revenue went into debt servicing in the first half (H1) of 2021. Recently in September, it was also disclosed that in five years the Country has spent no less than $1.79bn on servicing debts owed to the World Bank and the Exim Bank of China.

At the 2021 Chartered Institute of Bankers’ (CIBN’s) Fellowship Investiture, in Lagos, over the weekend, a partner at PricewaterhouseCoopers (PwC), Taiwo Oyedele, warned that the Country’s rising debt service obligations, if not curtailed, could lead into a debt trap,  noting that the Country’s public debt rose by 21 per cent in five years. In his presentation on the theme: “Nigeria’s rising debt profile: Issues and implications for sustainable economic development,” Oyedele was quoted: “Our debt profile has risen 21 percent over the past five years and this is somewhere around 156 per cent increase. If you add it up to today it would have increased further. This is just as at end of last year. In this same period our GDP has just increased by an average of 0.15 per cent per annum; Our revenue has only expanded by five percent in this same period resulting in our debt service cost ratio to revenue getting close to 100 per cent. This is where we need to start getting concerned. Nigeria is a poor country although with the potential to be rich and there are two different things. I hold the view that the level of borrowing is not inevitable because our debt is growing faster than GDP. Debt service fee is growing faster than revenue which means that if we do not reverse the trend, we will enter what we call the debt trap which means the point of no return.”

The sustainability of Nigeria’s economy amidst the protruding strains posed by the burdens of debt servicing have become an issue of disturbing concern. The posture of the government recently has not shown any form of caution in relation to flags of dangers raised. The subject therefore is not one of paucity of calls for caution, but the readiness to find reason with the flags of submissions as the economy of the Country continue to increasingly become entangled with strains of disconfiguration.