Nigeria Walking Into Another Foreign Debt Trap
Nigeria walking into another foreign debt trap. Criticism has greeted the fresh request by the President, Major General Muhammadu Buhari (retd.), to the National Assembly seeking approval for another foreign loan of $6.18 billion to part-finance the 2021 budget.
Foreign Debt Trap
Public displeasure has been directed at the regime for its addiction to borrowing without tangible results, and at the parliament for its perceived robotic approvals of such requests and its failure to demand details and accountability.
As external and domestic debts rise with scant improvement in the economy, the government should stop digging deeper into debt, while the legislature should be more rigorous in exercising its statutory oversight.
Foreign Debt Trap
Both arms of government owe Nigerians no less. External debt has risen exponentially to hit $33.34 billion by December 2021 compared to $10.31 billion in June 2015, according to the Debt Management Office.
For a country that escaped three decades of a crushing debt burden just 15 years ago when the economy was in a better shape, a more devastating debt trap amid rising poverty and joblessness is emerging.
Foreign Debt Trap
Buhari explained that the loan would facilitate funding of “critical infrastructural projects in transportation, health and education” among others.
Howls of protest elicited clarifications from the DMO, which said the New Capital Raising was provided for in the 2021 Appropriation Act and accordingly, already endorsed.
Foreign Debt Trap
It said the loan was part of the planned borrowing to fund the N5.6 trillion 2021 budget deficit.
This did not assuage public disquiet. For the organised private sector, the steep rise in debt and increasingly weak revenue base call for a pause and greater circumspection over existing and new borrowing plans.
Foreign Debt Trap
This makes sense, especially as the government admitted that almost 90 per cent of its retained revenue was spent on debt servicing from January to November last year.
The President of the Abuja Chamber of Commerce and Industry, Al-Mujtaba Abubakar, emphasised that the deficit financing plan should be tempered by the adverse effects of excessive borrowing, especially on interest payment, adding, “We particularly call attention to the debt service rate and its attendant depletion of revenue earnings.”
Foreign Debt Trap
Muda Yusuf, the director-general of the Lagos Chamber of Commerce and Industry, adds that the country’s debt profile continued to raise “serious sustainability concerns.”
Nigeria has, through poor economic management, incompetent leadership, and external shocks, found itself in a cul-de-sac.
Foreign Debt Trap
Having failed to diversify revenue sources and overturn the dependence on crude oil that provides 90 per cent of budget funding, the country is vulnerable to price volatility in the international market.
The COVID-19 outbreak and the ensuing global contraction further hit hard, seeming to offer even more debt acquisition irresistible to a regime that was already taking loans at an unprecedented rate.
Foreign Debt Trap
In June 2020, the National Assembly approved borrowings totalling $22.79 billion to cover the 2016-2018 External Borrowing Rolling Plan.
Alarmingly, Buhari’s correspondence to the parliament revealed that a total of $36.83 billion is to be borrowed from diverse sources through the 2018-2020 borrowing plan period, ostensibly to fund infrastructure and poverty reduction projects, among others.
The debt size is becoming monstrous; total national debt hit $86.3 billion by December 2020 of which the external component was 36.36 per cent, compared to $63.8 billion in December 2015 when external debt at $10.31 billion was 16.1 per cent.
Foreign Debt Trap
By December 2006, after the famed debt buy-back deal, external debt was just $3.54 billion, down from a peak of $35 billion.
Revenue inflows are not keeping up with funding needs thereby exerting pressure on repayment obligations.
Foreign Debt Trap
The World Bank/IMF warning that the government shifts its focus from the benign debt-to-GDP ratio that the NBS put at 18.8 per cent, to the more debilitating debt-to-revenue ratio assessed at 83 per cent by Fitch, the rating agency, looms hauntingly large.
It is projected to rise to 395 per cent by 2022. Interest cost alone is set to consume 24 per cent of public revenues while the expected imminent rise in debt-to-GDP ratio to 32.6 per cent will upturn the comforting statistic.
Foreign Debt Trap
By April 2020, the external debt had reached 75 per cent of foreign reserves and by March this year; reserves at $34.8 billion were only slightly higher than the $33.34 billion external debt.
Debt has its positive uses, such as funding critical infrastructure, but on its own, cannot solve the country’s economic crisis.
Foreign Debt Trap
COVID-19-induced adversity has forced most countries to borrow, with 90 countries, including Nigeria, requesting the IMF credit facility by last year.
The IMF and UNCTAD conclude that emerging and developing economies would collectively need $2.5 trillion to manage outstanding debts to recover and eventually obviate the need for debt.
Buhari should stop borrowing for consumption. Wise governments target debt as a short-term measure to restart production, generate employment and boost consumer demand.
Foreign Debt Trap
Nigeria should stop borrowing for railways and adopt a strategy of liberalisation and privatisation and Public-Private Partnership to attract foreign and domestic private investment.
It should implement and step up its apparently half-hearted pledge to raise funds through privatisation: so far, five months into the year, a move to sell five power generation assets is the only action in this regard; it should halt the ill-advised $1.5 billion refinery rehabilitation contract and a credit-driven $1.46 billion plan to “reactivate” Ajaokuta Steel. Just sell them transparently.
Plugging revenue leakages, destroying the huge, thriving machinery of corruption and cutting waste, the bureaucracy and luxuries will bring in trillions to the treasury and preclude the desperate need for loans.
Foreign Debt Trap
The NASS should stop rubber-stamping loan approval requests from the Executive branch; it owes Nigerians a duty to thoroughly scrutinise every request in the national interest.
This means insisting on the full details of the loans, the projects, repayment plans and feasibility.
Lawmakers must demand accountability and exercise oversight on past and ongoing credit-funded projects, insisting on value for money.
NASS should repeal the Railway Act 1955 to attract FDI, stop creating new cost centres, but focus on cost-cutting legislation and drastically reducing the cost of governance.
Foreign Debt Trap
Nigeria walking into another foreign debt trap. Hmmm! Leave your comment on the comments section below.
