The Senate last week swiftly approved the $2.2 billion (about N1.77 trillion) external borrowing request by President Bola Tinubu to finance 2024 budget deficit estimated at N9.17 trillion. The loan was approved through a voice vote after the Upper legislative Chamber considered the report of its Committee on Local and Foreign debt chaired by Sen. Wamakko Magatakarda. The loan will also form part of the funds needed to finance the N28.7trillion 2024 budget as incorporated in the Appropriation Act. With the confirmation of the loan request, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, and the Debt Management Office (DMO) have been mandated to take necessary steps to execute the loan facility.
The $2.2billion external loan will be sourced from Nigeria’s Eurobonds in the International Capital Market totaling $1.7billion, and gains from financial laws of the country, especially Sukuku financing estimated at $500 million. According to reports, the loan will be at an official exchange rate of $1/N1,640 for the implementation of capital projects as contained in the 2024 budget. Undoubtedly, the fresh loan will stretch the amount spent on debt servicing by the federal government. Recently, the Central Bank of Nigeria(CBN) said it cost the government a hefty $3.58billion to service external debt in the first nine months of 2024 (January-September).
The latest loan has raised concerns from many quarters. It also comes amid reports that Nigeria’s debt exposure to the World Bank’s International Development Association (IDA) has increased to $17.1billion as of September 30, 2024. IDA is part of the World Bank that provides grants and low-interest loans to help the world’s poorest counties. This is contained in the World Bank’s latest financial statements for the current fiscal year in which Nigeria’s debt to IDA rose by $600 millions in just three months from $16.5billion recorded in June 2024. This represents an increase of 14.4 per cent between the figures recorded in June 2024, and the $14.3billion recorded in June, 2023. With this, Nigeria has become the third largest debtor to the World Bank’s IDA.
Besides the current loan request, between July 2023, and June 2024, the federal government had borrowed N2.2billion. Data from the DMO shows that for the first time, Nigeria moved on the top four indebted nation’s in June last year, and since the advent of Tinubu administration, Nigeria has borrowed a total of $2.8billion from the World Bank’s IDA alone, putting the country on the third worst indebted country after Bangladesh and Pakistan in first and second position, with debt exposures of $21billion and $18.5billion, respectively. On the lower end are Ghana and Uganda with $7billion and $5billion, respectively.
Nigeria may sink deeper into the debt trap as it is reaching its limits on borrowing. Already, Nigeria’s total debt profile as the first quarter 2024, was N121.66trillion, comprising of N65.65trillion ($91.46billion) domestic debt and $42.12billion (N56trillion) external debt. The long-term effect will likely have unpleasant consequences to an already terrible hardship in the country. According to the Lagos Chamber of Commerce and Industry (LCCI), the business community is becoming increasingly alarmed by Nigeria’s precarious economic situation and the potential ramifications of additional borrowing on the nation’s financial health. This is genuine concern.
With a new tax reform coming, the burden on the people may be incalculable. Additional worry is the fact that a large part of the fresh loan will be sourced through Eurobonds, which are non-concessional, and very costly for repayment. More emphasis should have been on sovereign loans like Sukuk which are tied to projects. They are also cheaper. While there is nothing basically wrong with borrowing, we advise that they should be tied to worthwhile projects. In other words, the loans should not be mismanaged. Sadly, Nigeria’s history of loans’ mismanagement is legendary. This explains Nigeria’s frequent struggles with fiscal deficits. While external borrowing may provide immediate relief to budgetary constraints, the rising cost of servicing the debts has inevitably caused serious strains on public finances.
Proper monitoring of the loan is necessary to avoid wasteful spending that may derail the intended developmental outcomes that could leave the country in even higher debt. The loan when it arrives must target specific sectors of the economy, with priority attention to productive sectors that should impact lives and livelihood of the people. Unfortunately, the government is not doing enough in curbing the cost of governance. In addition, government policymakers should design well-thought out financial and institutional reforms key for sustainable development. Such reforms should deviate from the current ones now suffocating the people and the economy.