Should Nigeria borrow a new $29.6bn?
Within the outgone week, President Muhammadu Buhari sought the approval of the National Assembly to borrow the sum of $29.96bn as contained in the 2016-2018 External Borrowing Plan. Recall that the same plan did not get the approval of the Eighth National Assembly when it was originally presented in 2017. Considering Nigeria’s debts and debt servicing and repayment obligations, is this latest request sustainable? Is it in accordance with the Fiscal Responsibility Act which governs borrowing and debts? This discourse reviews Nigeria’s extant debt situation, its revenue and the implication of the new request on our budgetary system.
The first issue is to trace the trajectory of our debts since the Buhari administration. According to the Debt Management Office, Nigeria’s debt as of June 30, 2015, shortly after Buhari took the oath of office was in the sum of N12.118tn, being the equivalent of $63.8bn. This is the aggregate of the external and domestic debts of the federal and state governments. The total external debt stock was $10.3bn. Fast forward to June 30, 2019, the DMO reported a total debt of $83.8bn, being the equivalent of N25.7tn. In naira terms, the total debt has increased by over 100% while in dollar terms, it has increased by close to 33%. This scenario of the gulf between the naira and the dollar increase is understandable considering the devaluation of the Nigerian currency within the period under consideration. The external component of the debt has risen to $27.1bn, being an increase of $16.8bn over the four-year period. However, the FGN component of this external debt is $22.8bn. If the current request is approved by the National Assembly, it will bring the total debt to $113.7bn.
According to the Minister of Finance, Nigeria deployed 54.3% of her earned revenue for debt service in 2018. Also, in the first half of 2019, we deployed 54.2% of all our earned revenue for debt service. Thus, a trajectory of 54% has been established in two years. This raises the poser whether paying debt with 54% of earnings is sustainable at the individual, community or national level. The answer must be in the negative especially for an underdeveloped infrastructure starved country like Nigeria. If at $83bn debt, we are using 54% of our revenue to service debts, what percentage of our revenue will be required for debt service when the debt hits $113bn? It will be more than 54%. Yes, there are steps being taken especially under the Finance Bill, which will soon become law, to increase government revenue, but the steps are tepid and not strong enough to dramatically improve government revenue. This brings us to the first conclusion anchored on empirical evidence that our debt relative to our revenue is not looking good.
The second issue arising from this request is about adherence to laws. The Fiscal Responsibility Act clearly states that borrowing shall be for capital expenditure and human development. Where is the $83bn worth of capital investments to show for this humungous debt? Alternatively, where is the investments in human capital, in education, health, etc. to justify the $83bn debt? For the addition of $16.8bn external debt in four years, what do we have to show for it? Which new roads, bridges, airports, schools, hospitals do we have attributable to the proceeds of the borrowing? Evidently, we have been borrowing for consumption and recurrent expenditure. In 2018, the actual expenditure on recurrent non-debt expenditure was N3.1tn while debt service was N2.1tn bringing the two to N5.2tn. The earned revenue was N3.9tn; this means that we borrowed or got some unearned money in the sum of N1.3tn to settle recurrent and debt service. This brings me to the second empirical conclusion: that we have been deploying the proceeds of borrowing in violation of the Fiscal Responsibility Act.
The third issue is that we are seeking to borrow in foreign currency with its attendant foreign exchange risks. For an economy that has witnessed a serious decline in the value of its currency and the economic indicators seem to be pointing to decreased foreign exchange earnings — considering the place of crude oil as the central foreign exchange earner, the likelihood of default in payment due to inability to raise enough foreign currency is real. So, where will that leave Nigeria?
The Fiscal Responsibility Act requires requests for borrowing to be accompanied by a cost-benefit analysis. Projects to be funded with borrowed money are expected to be regenerative, being projects that can directly or indirectly enhance revenue generation that will be used to repay the debt. Such investments can improve the ease of doing business, create new jobs and increase firms’ productivity leading to enhanced corporate and personal income tax and possible exports to earn foreign exchange, etc. They can also be investments to improve human capacity for value addition, innovation and creativity which in the medium to long term will improve the economy’s productive capacity. But in the Nigerian context, where are the projects that meet these criteria? For the projects that have been completed with borrowed money, is there is any study showing how they have positively improved the nation’s productivity or earning capacity?
The fourth issue is that leadership is stuck with the mindset that only sovereign loans can be used to fund infrastructure and other big-ticket projects. But there are other options which need to be explored to fund infrastructure beyond sovereign debts. These include public private partnerships, greater value for money and transparency in the use of retained revenues and financing projects through special purpose vehicles, etc. More money can be raised from the local economy, not in the form of taxes and rates but investments which will free the government from having to look for big outlays of revenue to fund capital projects.
Considering all relevant factors, this attempt at raising new loans in the sum of $29.6bn is a step in the wrong direction. It will not only make our debt repayment unsustainable, it will be committing the country to debt bondage, enslave the citizens and grossly slow down our development. If the President is serious about procuring this debt, the minimum expectation is that he should publish not only the projects to be funded by the borrowing, the terms of the borrowing, the cost-benefit analysis and reasons informing the selection of the projects. Thereafter, a national debate, not just in the National Assembly will be held to determine its propriety.
The National Assembly is expected, not just to rubber-stamp the request for borrowing as the body language and even spoken words of its leadership indicate. It must be open for citizens’ input because the decision to borrow will touch the lives of all Nigerians in a dramatic way. Borrowing of this nature must be based on dialogue, citizens’ input, transparency and the dominance of a majority opinion.
Written by Eze Onyekpere, published on Punch Newspapers