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Minister of Finance, Mrs. Kemi Adeosun, recently affirmed the government’s intention to continue borrowing to drive the economy. She averred at the annual meeting of the World Bank and the International Monetary Fund (IMF) in Washington DC, USA, that the borrowing was a temporary measure aimed at developing infrastructure in the country.
The loans, however, will be moved from the domestic to the international market, to relieve the banking sector liquidity in favour of the private sector, generate economic activities, jobs and revenue capable of repaying the loans.
Nigeria is seeking external loans of $29.86 billion from multilateral institutions such as the World Bank, African Development Bank (AfDB), Japan International Cooperation Agency and the China Exim-Bank. Although the World Bank believes that this borrowing plan is in line with the country’s economic realities, it has warned through its Senior Economist in Nigeria, Ms. Gloria Joseph-Raji, that the cost implications of paying interest on such debts might not be sustainable, considering the dwindling revenue accruing to government coffers. The bank, she said, welcomes Nigeria’s current efforts to rebalance its portfolio to lower the cost of its borrowing as contained in the federal government’s 2016-2019 Medium- term debt management strategy released last year, especially now that the country is exiting recession which calls for a rebalancing of the economy. The government should, however, not lose sight of the fact that Nigeria’s debt-to-revenue ratio has increased by 25 percent within the past one year alone. In 2015, it stood at 35 percent, but rose to 60 percent in 2016.
Justifying the foreign borrowing, the Finance Minister argued that “Nigeria’s debt-to-GDP ratio is one of the lowest, at 19 percent, but most countries have over 100 percent.” Even though the Federal Government is not pushing for 100 percent, she calls on Nigerians to “tolerate” a little more debts in the short-term to deliver on critical infrastructure such as rails, roads and power, which the debts would be tied to, to speed up development and avoid job losses in the midst of the current slide in oil revenue.
According to the Minister, what government is doing is to “create enough headroom to invest in capital projects that Nigeria desperately needs” at the moment. With the huge decline in oil revenue, the government has no choice but to seek external borrowing at low interest rates.
The World Bank advice is timely and expedient, considering successive governments’ proclivity for misusing loans. Such concerns predate the present administration. In the past, our governments promised to tie such borrowings to critical sectors that will ramp up economic growth, create jobs and repay the loans, but the loans were either misapplied or misappropriated, and ended up only increasing the nation’s debt stock. We, therefore, urge the current administration to be careful with its utilisation of this loan. We reiterate the importance of prudent management of all credit facilities, whether they are from the domestic or international market.
The Debt Management Office (DMO) recently set a borrowing limit of $22bn for the federal government for the 2017 fiscal year. It said government could borrow up to 5.89 percent of the GDP, noting that the economy will be vulnerable to risk if urgent steps are not taken to shore up revenue collection. The new borrowing ceiling was one of the outcomes of the 2016 Debt Sustainability Strategy designed to ensure fiscal discipline. The total debt stock was N19.64trn as at June 2017(at the official exchange rate of N305/$). This makes the advice of the World Bank and that of other experts worth heeding.
Not long ago, Fitch ratings showed that the Federal Government’s debt had hit a staggering 320 percent of its annual revenue, one of the highest figures in the world. This is well above the median of 196 percent for countries in Africa and the Middle East that were rated by the global financial agency. Even recently, the government during the unveiling of its Economic Recovery and Growth Plan (ERGP) acknowledged that Nigeria’s public debt was gradually spiraling out of control as a result of declining revenue. The truth is that looking at Nigeria’s debt stock in isolation may not appear to pose any danger. It is still within the threshold of 19 percent set by the DMO, but the government should broaden the tax net to boost its finances. The huge increase in the nation’s debts in one year calls for concern. Nigeria can ill afford another debt overhang after exiting the London/Paris Clubs of creditors at a huge cost.
