The recent declaration by Doyin Salami, chairman of President Muhammadu Buhari’s Economic Advisory Council (EAC), that Nigeria’s rising debt profile is unsustainable; though unsurprising, is certainly no complimentary news. But the revelation that the revenue-to-debt service ratio now stands at 98% is an indicator that Nigeria has passed a critical threshold and is being strangulated with little or no room for maneuver to repay its debts. What a debt independent revenue of 98% means in concrete terms is that, for every N1 Nigeria earns, 98 kobo is used to repay loans; leaving the government to survive on 2 kobo. This is utterly ridiculous and unacceptable. Paradoxically, the administration’s defensive fulminations at suggestions that Nigeria is broke, amounts to an ostrich evasion that is a recipe for social cataclysm and possible violent implosion of the polity over a serious national issue that has well gone past crisis point. Nigeria’s debt crisis points to a broken fiscal regime; and should be a wake-up call to the Central Bank of Nigeria (CBN) to immediately stop digging the economy into a deeper hole with a naira defence strategy that has put the economy on life-support. President Buhari must act decisively to salvage the nation crumbling under the weight of debt servicing and bureaucratic ineptitude. Nigerians are tired of excuses and deserve some respite from the excessive borrowing.
Ironically, Salami’s innocuous remarks came at the same time Buhari was seeking approval from the National Assembly to borrow more money to fund deficits in the 2021 budget. Senate President, Ahmad Lawan, who strongly defended the reckless decision to borrow infinitely, referred the president’s request, seeking to borrow $4.054bn, €710m and $125m external loans to the Senate Committee on Foreign and Local Debts for further legislative action. In his letter to lawmakers, Buhari explained that the projects listed in the 2018-2021 Federal Government Borrowing Plan are to be financed through sovereign loans sourced from the World Bank, French Development Agency, China-Exim Bank, International Fund for Agricultural Development, Credit Suisse Group and Standard Chartered/China Export and Credit in the total sum of $4,054,476,863.00; €710,000,000.00 and grant component of $125,000,000.00.
It seems there’s no end to the odium Nigerians would suffer as borrowing has been elevated to an instrument of statecraft by the Buhari administration. From China’s Exim bank to the World Bank, African Development Bank, Islamic Development Bank, German Development Bank and others, the federal government seems to be scavenging for loans from just about anywhere without any thought about how they would be repaid. While borrowing may be inevitable, especially at challenging times like this, compounded by the Covid-19 pandemic and fluctuating oil prices, the federal government must understand that Nigeria cannot borrow its way into prosperity. Besides the fact that the funds are not being deployed into income-generating capital projects, the alarming rate at which the loans are piling up is bound to mortgage the future of the country and its sovereignty. Experts within Nigeria and multilateral lenders are sounding the alarm against increased borrowing amid plummeting revenues. The CBN Monetary Policy Committee (MPC), has repeatedly cautioned the government against hiding under the subterfuge of some nebulous debt-to-GDP ratio to continue amassing loans.
The Debt Management Office (DMO) recently disclosed that Nigeria’s total public debt, comprising states and federal government debt obligations, grew 7.75%, from N32.916 trillion in December 2020 to N35.465 trillion as of June 2021. And going by Salami’s projection, Nigeria’s debt stock is estimated to hit about N54 trillion when “Ways and Means” as well as the Asset Management Corporation of Nigeria (AMCON) liabilities and the 2021 fiscal deficit are factored in. According to a statement from the DMO’s website, the debt stock includes Promissory Notes in the sum of N940.220 billion issued to settle the inherited arrears of the Federal government to state governments, oil marketing companies, exporters and local contractors. Further analysis shows an increase in the domestic debt stock which grew 2.11% from N20.21 trillion in December 2020 to N20.637 trillion as at March 31, 2021. According to the DMO, the FGN’s share of the domestic debt includes FGN bonds, Sukuk and Green bonds used to finance infrastructure and other capital projects as well as the N940.220 billion promissory notes.
Nigeria has obtained 17 Chinese loans to fund different categories of capital projects, and Nigeria will still be servicing these Chinese loans until 2038, which is the maturity date for the last loans obtained in 2018. Out of 64 countries that host the Chinese Belt and Road initiative projects, 20 have gone under distress and eight are about to lose their sovereign debt sustainability should they take any further loan. Chinese loans now make up about 10% of Nigeria’s external debt and China strategically tie loans to infrastructure obviously with the intention of seizing the infrastructure assets in case of default, as such assets become collateral. While the question remains unanswered, key Chinese-funded infrastructural projects in Nigeria, which might seized by China, in case Nigeria defaults on its debt includes: the $500 million Abuja urban rail system; the $500 million 180 km Abuja-Kaduna rail system; the four upgraded international airport terminals in Abuja, Kano, Lagos and Port Harcourt, the Lagos-Kano rail line; the $1.2 billion Zungeru hydroelectric power project; the Lagos-Ibadan rail line amongst others. Also, Exim bank provided $328m to support the National Information and Communication Technology Infrastructure Backbone Phase 11 (NICTIB 11) between Galaxy Backbone Ltd and Huawei.
In its 2020 Macroeconomic Outlook, the Nigeria Economic Summit Group (NESG) warned that “Nigeria’s mounting debt profile is a major concern” as Nigeria spent the equivalent of 83% (N3.26 trillion) of its N3.93 trillion total revenue in debt servicing. Likewise, Nigeria recorded a 99% debt service to revenue ratio in the first quarter of 2021, having recorded revenue of N950.56 billion and incurred N943.12 billion in debt service. However, the federal government projects a debt service ratio of 46.9% for 2021, with projected revenue at N6.6 trillion, based on crude oil benchmark of $40 per barrel. According to the 2021 budget, N7.99 trillion was projected for the year, indicating a budget deficit of N5.6 trillion, which is expected to be funded by borrowing. This increasing debt service fee amid declining revenues indicates Nigeria is spending most of its revenue on servicing debts, and borrowing to pay debts.
Of particular interest, is the rising debt profile of some states. Despite federal allocation, many states, especially oil-producing ones are broke; or in the red. Conservative estimates by governance experts put the number of states that can survive without federal allocation, to no more than three. With huge debt portfolios, the country’s 36 states and FCT are in dire financial straits as a majority of them can hardly meet their routine obligations after servicing their monthly debts. The result has been an economy of negative escalating non-investable national domestic debt, hostile economic environment, high lending rates, high inflation, unrealistic exchange rate, monetary tightening measures, restricted access to bank credit, high bank non-performing loans, comatose real sector, mounting joblessness and a nation in free-fall; in effect, Nigeria is a disaster waiting to happen.
Truth be told: the current situation has far-reaching national security implications. Which is why it bears reminding the “Borrower-in-chief” president that a time like this demands a leader that would stand up to be counted in action, not only in words. The alternative to restructuring the Nigeria federation to unleash the development capacity of the component units cannot be endless borrowing to grease the existing state structures, but rather; shrinking them into larger productive units in order to reduce the cost of governance and free resources for national development. Nigeria’s economy has been groaning under the weight of high governance cost which consumes 70% of its earnings to the detriment of capital projects. Infrastructure and other development indices have been de-emphasized in order to foot the high cost of governance.
The rising debt profile is a national emergency and a sad reflection on presidential leadership that could be interpreted as an act of nonchalance and a blatant endorsement of a status quo; which wittingly or unwittingly is pushing the nation towards the precipice. Preaching is not the solution. The buck stops at the President’s desk and any leader that perennially makes excuses only exhibits a lack of focus and opens himself to charges of cluelessness and failed leadership. The DMO recently put out a statement assuring the public that: “Nigeria’s public debt is being managed under statutory provisions and international best practices, and there is no risk of default on any loan, including the Chinese loans. Thus, the possibility of a takeover of assets by a lender does not exist. For the avoidance of doubt, government’s borrowing in the domestic and external markets, including Chinese loans, are all backed by the full faith and credit of government, rather than a pledge of government’s assets.” This is hardly credible. Thankfully, Buhari still has some time left in his tenure to turn things around and prove himself; not as a Debtor-in-Chief, but as the President who fought the most, on behalf of the Nigerian people. On this score, more than anything else, the verdict of history will be merciless!
