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The borrowing spree of the Bola Tinubu administration in the midst of Nigeria’s rising and unsustainable debt profile is worrisome. Instead of having a moratorium on borrowing and growing the economy through increasing internally generated revenues in line with the advice of the Debt Management Office (DMO), President Bola Tinubu recently sought the nod of the National Assembly to borrow $7.8billion and €100 million or $106million. According to the President, the amount would be used to fund projects in various sectors across the country.
Tinubu’s request to the lawmakers was contained in separate letters addressed to the leaders of the Senate and House of Representatives, Godswill Akpabio and Tajudeen Abbas, respectively. He said the funds, when approved, would be used to develop infrastructure, agriculture, health, education, water supply and security.
Some of the funds would also be used to alleviate poverty, generate employment and finance management reforms. He also explained in the letter to the lawmakers that the Federal Executive Council (FEC) had towards the end of Buhari administration approved the loan to finance some projects. Besides, the World Bank Group and the African Development Bank (AfDB) have promised to assist Nigeria to overcome the economic challenges arising from the removal of fuel subsidy.
The World Bank has pledged a loan of $2billion, while the AfDB will give the country a loan of $1billion. It is expected that the loans will bridge the financial gap and stimulate the economy. The projects were selected based on economic evaluation and social impact. Although there is nothing basically wrong with borrowing, the challenge is how to ensure the judicious use of the funds in executing the projects. Unfortunately, the Tinubu administration is treading the same path as his predecessor. Under Buhari, Nigeria’s debt profile ballooned to N87trillion. With the move to obtain new loans, the era of borrowing is not yet over. There are fears that the nation’s debt profile will continue to rise.
However, let the government ensure that the loans are tied to specific projects that will stimulate the economy. Regrettably, government’s management of loans in this part of the world has not been encouraging. Last year, the DMO advised that the federal government should put a moratorium on fresh loans. It stated that 73.5 per cent of last year’s revenue was used for debt servicing. Currently, about 96 per cent of the revenue is being used for debt servicing. No doubt, this is unsustainable.
Rather than taking fresh loans, the government should focus on sustainable debt service-to-revenue ratio. To meet the target, the government should be able to generate N15.5 trillion annually. In its 2022 Debt Sustainability Analysis Report, the DMO warned that the federal government’s projected revenue of N10trn for 2023 would not support fresh borrowings. Unfortunately, the advice was not heeded. At present, Nigeria’s total public-to-GDP ratio is projected to increase to 37.1 per cent at the end of this year. In view of Nigeria’s rising debt profile, let the government check its appetite for borrowing.
It should also cut the opulence of political office holders. The sustainability of such expenditure threatens economic growth and the welfare of the citizens. Last year, a World Bank’s report showed that the federal government spent 96.3 per cent of revenue generation on servicing debts. This put Nigeria’s public debt stock at 38 per cent of the Gross Domestic Product (GDP) and pushed the debt service to revenue ratio from 83.2 percent in 2021 to 96.3 percent last year.
Nigeria’s debt has increased significantly in recent years. Nigeria’s GDP declined from 3.6 per cent in to 3.3 percent in 2022. This was driven by challenges in the manufacturing and construction sectors. The oil sector, which contributes the bulk of the revenue, has contracted by 19.2 per cent since 2020.
Therefore, the government should adhere to the recommendations of the DMO and stop the borrowing binge. Moreover, it should properly articulate its funding needs before going for any foreign loan. This has become necessary because Nigeria is reaching its borrowing limits. Above all, let the loans be used judiciously and tied to projects that will guarantee huge returns on investment.
