Nigeria’s external debt climbed from $2.1 billion after the country exited from the Paris and London clubs of creditors in 2006 to about $41.8 billion it currently stands.
The external debt liability stood at $41.69 billion as at the end of last year. But recently, the Federal Government signed an agreement with the International Bank for Reconstruction and Development (IBRC) for additional borrowing of $800 million for palliatives to support about 10.2 million most vulnerable Nigerians ahead of fuel subsidy removal.
In 1999 when democracy returned to Nigeria, its total debts stood at $28.04 billion. The figure dropped to $2.1 billion on the famous debt relief secured by ex-President Olusegun Obasanjo. It went up to $7.3 billion under Dr. Goodluck Jonathan in 2015.
In the past eight years, Buhari has raised the figure by as much as over 400 per cent to $41.8 billion. In October 2005, Nigeria and the Paris Club announced a final agreement for debt relief worth $18 billion and an overall reduction of Nigeria’s debt stock by $30 billion. The deal was completed in April 2006 when Nigeria made the final payment and its books were cleared of Paris Club debt.
While campaigning for debt relief, the Debt Management Office (DMO) said it developed instruments that would ensure Nigeria does not slide into a debt trap in the future.
In a 17-page presentation, ‘Nigeria’s debt relief deal with the Paris Club’, the DMO wrote: “The Fiscal Responsibility Bill has been designed to lock in the gains of economic reform and prevent a relapse to the past. The law will commit all tiers of government to a set of rules for efficient economic management in terms of standardized planning, as well as control and monitoring of public borrowing and expenditure.”
About 17 years later, it appears Nigeria is back to the debt trap, with the total foreign debt rising by 1,890 per cent, from $2.1 billion it was in 2007 when Obasanjo left office.
Statistics released by the DMO on Nigeria’s external debt stock as at December 31, 2022 highlighted the sources of Nigeria’ debt burden to include 18 sources. These include the International Monetary Fund (7.8 per cent), International Development Association (32.2 per cent), International Bank for Reconstruction and Development (1.1 per cent) and African Development Bank (3.8 per cent).
Others are African Growing Together Fund (0.04 per cent), African Development Fund (2.2 per cent), Arab Bank for Economic Development in Africa (0.01 per cent), European Development Fund (0.09 per cent), Islamic Development Bank (0.33 per cent), China EXIM Bank (1.02 per cent), Agence Francaise Development (1.28 per cent) and Japan International Cooperation Development (0.15 per cent).
Sadly, close to 100 per cent of Nigeria’s revenue is allocated to debt servicing and refinancing, a situation many consider as a sign of distress.
In the face of the rising debt burden, though, the World Bank said Nigeria has no alternative to borrowing to finance its budget. The Country Director World Bank for Nigeria, Shubham Chaudhuri, said Africa’s most populous country has no choice but to borrow to finance its 2023 budget deficit.
Chaudhuri disclosed this during an interview with Channels Television at the weekend. He was reacting to its $800 million concessional loan offered to Nigeria.
There have been tense criticisms from Nigerians and stakeholders concerning the $800 million loan from the World Bank amid the country’s rising debt profile.
However, Chaudhuri explained that Nigeria has no alternative but to borrow to finance its N10.7 trillion budget deficit. He noted that whether fuel subsidy is removed or not, the country still must approach lenders to fund its deficits.
According to him, the World Bank’s $800 million is the most affordable for Nigeria now compared to loans from the domestic market, Eurobond or others.
“Everyone needs to be clear on the fact that whether Nigeria receives the $800 million World Bank loan or not, 2023 Nigeria’s budget is already having a projected deficit of N10.7 trillion, that is if the fuel subsidies are removed by June but if not, the deficit would be N12 trillion or more. The deficits have to be financed; the fact is that Nigeria would be taking more debts to finance its budget deficits. Unfortunately, with revenue still being low as they are, Nigeria has no choice.
“The question is how do you finance the deficits? It will reach N10.7 trillion or N12 trillion; our financing is available but other choices exist. You can borrow from the Eurobond market, the domestic market or the Central Bank (Which had happened in the past with the ways and means of financing); all of those sources are quite expensive”, he said.
Interrogating the situation, the Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, described Buhari’s administration as the most reckless administration in the history of Nigeria, which will leave Nigerians in a bad place shortly.
Emmanuel said: “Buhari’s administration will be remembered as the most fiscally reckless with an absolute disregard for the Fiscal Responsibility Act (FRA). Every sensible tenet that was placed as a safeguard by the constitutional framers to prevent the economy from stumbling has been violated.
“Nigeria’s debt per capita has gone from N17,800 to N368,421. Nigerians will bear the brunt of high inflation and high cost of capital from monetary tightening.”
An energy expert, Henry Adigun, said the current level of indebtedness will sink the economy because Buhari broke all known financial rules, including the Fiscal Responsibility Act, which should serve as a guide against reckless borrowing.
“I can’t understand how we got here; Nigeria broke every fiscal rule. CBN ignored all the mechanisms in place to avoid this. The Debt Management Office was also complicit. Nigeria has a revenue problem. You can’t spend over 90 per cent of your earnings on service debt. The economy will crash,” he stated.
He charged the government to eliminate subsidies and stop supporting the budget through the ways and means (W&M), adding: “Cut wastage and tighten up your procurement systems. Implement the Orosanye report. Free up capital for the government by allowing the private sector to fund businesses. Government has no business in business. We are heading towards a cliff.”
Adigun maintained that there are sectors that the government has no business participating in, saying that the business of government is funding social services.
“The private sector has plenty of funds. The current exchange rate manipulation will not aid investment. A country that adopts multiple exchange rates already disincentivizes investment, it does not matter whether it is foreign or local. Investors go to where the business environment is friendly and free of manipulation,” he explained.
Conversely, Dr. Tope Fasua, an economist, agreed that the Central Bank of Nigeria (CBN) is complicit by sidestepping the rules. But he argued that if the rules had been complied with fully, the economy might have long collapsed.
Fasua was quick to point out that the Federal Government started ‘abusing’ the ways and means in 2016 before COVID-19 happened, adding: “COVID-19 became the necessary alibi for the government to go haywire, flouted the law with reckless abandon and kept on taking money from the CBN without recourse to the law.
“I think that the Federal Government ought to have proposed the amendment of the CBN Act to be in tune with the economic realities.
“The law says that W&M should not be more than five per cent of the total revenue of the previous year by the Federal Government. It must be said that the law itself that guides the ways and means is crippling. Governments all over the world rely on their central bank to survive in times of trouble.” To him, the attention should not be on loan repayment, but that facilities should be instruments to grow the economy.
“The idea behind debt is to grow the economy and not pay back. It is a known fact paying back debts slows down the economy of countries. If we are a thinking country, we ought to go back now and examine our laws again. For example, if we go into another COVID-like crisis, how will we escape the crisis? Are we thinking in that direction? That is the reason we must amend the CBN Act to be in tune with the reality of today,” he said.
Although he agreed that Buhari, the Minister of Finance and the governor of the CBN flouted the CBN Act, Nigerians must look at the brighter side of the situation.
He submitted that Nigeria cannot grow her economy without borrowing, saying: “It does appear to me that Nigerians are prepared to hold down their economy and worry about debt. If Angola is doing 100 per cent to GDP, why can’t we? If we know what to do with money, we would go out there to raise money to do what we want to do. Time to grow the real sector, health and education sectors to meet world standards.”
However, Fasua stressed that he will not advocate foreign debt but local debt. Government must raise money locally from diaspora bonds, infrastructural bonds, etc. to boost economic growth.
Fasua insisted that if the W&M had not been provided by the CBN, the three tiers of government would probably be owing five years of salaries by now but admitted that the economic managers in the Buhari administration have performed below expectations.