When it comes to debt, Nigeria has always been in the red zone of international and domestic lenders. It appears the federal government has a hobby of borrowing money anytime they are cash-starved. They hardly ever look inwards to raise money despite the huge natural endowments in the country. To make matters worse, the borrowings rarely impact the real sector of the economy. The obvious has always been poor utilization of the borrowed funds, riddled with embezzlement, capital project sham, and illusory expenditure.
Between 1999 and 2007, when Olusegun Obasanjo was president, the federal government borrowed N1.6 trillion from the domestic capital market. However, it successfully negotiated a Paris Club debt forgiveness in 2005 that led to a 45% drop in external debt position for both states and the federal government. The Paris Club terms were for Nigeria to pay 40% of its indebtedness while 60% was bought back. This debt-peace accord was because of home-grown economic reforms stirred by Obasanjo’s regime. Over the next three years – 2005 to 2007, Nigeria’s external debt dropped from N4.9 trillion in 2004 to N438.9 billion in 2007, when Obasanjo’s presidency ended. No new external borrowings were taken over these three years.
Once the new administration came on board, Nigeria resumed its debt accumulation. States and federal government borrowed N1.2 trillion from external lenders and the FG also borrowed N5.7 trillion from domestic lenders. With Buhari’s administration commencing in 2015, new external debt borrowings by states and federal government hit a whooping N7.4 trillion and FG’s domestic borrowing was N6.4 trillion within 5 years. In another twist, Buhari’s administration borrowed about N1.1 trillion last year only from external lenders.
All these statistics point out a single fact – Buhari’s administration has borrowed more money than any other presidential administration in five years only.
With the outbreak of coronavirus in Nigeria, it was clear that the government cannot meet its N10.59 trillion ambitious budget. The president was forced to trim it down to N10.27 trillion; still, this was no respite. There are three new approved loans to be wary of currently. First, there is a USD22.7 billion to finance the capital budget over the medium term. This same loan suffered a stalemate in the 8th senate but is now approved by the 9th senate. Second, there is a $3.4 billion approved IMF loan to Nigeria to contain the damage caused by coronavirus and oil price shock. Lastly, there is an N850 billion Senate-approved loan to fund selected projects in 2020’s budget. I can only imagine what you are thinking.
It is not unacceptable to borrow; it is unacceptable to borrow and not use the funds productively; it is unacceptable to have an ambitious budget deficit every year and rely on borrowings to fund it; it is also unacceptable to keep borrowing and not make effort to reduce dependence on crude oil, a commodity whose demand, supply and price are out of Nigeria’s control. Bear in mind that close to 25% of the 2020 budget will be used to repay debts. This is a crystal case of an overwhelming debt misfortune and sadly, Nigeria is heading, if not already in a state of debt overhang. It is unsurprising that the IMF did not include Nigeria in the list of countries whose debt will be forgiven due to COVID-economic complications.
What is the way forward? First, if history is anything to learn from, the federal government must embark on virile, home-grown economic policies that would be appreciated by external lenders and give them incentives to buy back some of our debts. In addition, Nigeria cannot keep running annual budget deficit because it relies on oil. There are other natural endowments to tap from. In fact, agricultural and agro-allied processed exports can fetch Nigeria twice its current FX earnings because the world will always eat.
There are too many irrelevant items in the budget if you examine it closely. The civil service is bloated with redundant ministries and parastatals that are cost centers. They should be scrapped. With a not-so-great legislative system, Nigeria can run a part-time legislature with lower pays, allowances, and perks. Also, loans should be used for the purposes spelt out during negotiation. Albeit, the future Nigeria generation will have this government to blame for economic hardship that would fall off the borrowings of this administration.
Written and edited by Michael Ogunremi
Michael is an economist with PwC Nigeria and editor-in-chief of Utopianomics