Heedless of dire warnings and stark reality of an unsustainable overhang, President Muhammadu Buhari is bent on digging the country into a new debt trap. Should the National Assembly accede to his renewed request to take $29.96 billion loans, total national debt stock will rise to $113.84 billion, far higher than the last debt burden of $35.5 billion that the country exited via a famous debt buy-back deal in 2005/06. The President should pull back from this disastrous plunge and the Senate should accord national interest paramountcy by decisively rejecting the request.
Nigeria has an unsavoury track record with debt, but no government has been more addicted to borrowing than Buhari’s that, ironically, came into office promising fiscal discipline and change. So enamoured of debt it is that inheriting only $10.31 billion external debt in June 2015, it had piled it up to $27.16 billion by the first quarter of 2019, an increase of $16.85 billion. Domestic debts also rose from $52.94 billion to $56.72 billion within the same period. The Debt Management Office said the government’s external borrowing grew by 32.38 per cent and domestic debts rose by 52.19 per cent by June. As the request was being presented, the International Monetary Fund was issuing yet another shrill warning that the country’s debts were becoming unsustainable.
But undeterred by rising debt servicing, already set at N2.45 trillion in 2020 – over 20 per cent of the budget – Buhari is insisting on borrowing almost $30 billion, a move that the organised private sector said would send provisions for debt servicing to over N3 trillion or over 30 per cent of the national budget.
For the government, however, the loans are required for projects that are “critical to the delivery of the government’s policies and programmes relating to power, mining, roads, agriculture, health, water and educational sectors” and fall under its 2016 to 2018 External Borrowing Plan. These, said the President, include special infrastructure projects, budget support ($3.5 billion) and Euro Bonds of $4.5 billion. Officials continue to justify the borrowing binge on the revenue crisis that followed the oil price crash and which eventually tipped the country into recession in 2015/2016, the poor state of infrastructure and massive unemployment, among others.
Countries do borrow to supplement other revenue sources, provide infrastructure, social services and budget support, but it is done wisely. The world has witnessed enough debt crises from which shrewd leaders have learnt to avoid peonage. But Nigeria’s debt is problematic: as the OPS noted, there is very little to show by way of infrastructure, jobs and poverty reduction for the debt already taken. The government short-sightedly borrows for consumption, to sustain the corrupt, bloated bureaucracy and sustain officials in opulence. It compounds this by seeking to single-handedly fund capital-intensive infrastructure like ports, airports, railways, roads and oil and gas projects. But McKinsey, a consultancy, says developing countries need $2 trillion investments just to meet current growth projections. The World Bank said the country needs to spend $15 billion each year for a decade to bridge critical infrastructure gap.
Rather than heed expert advice and admonition to liberalise the operating environment and privatise state commercial assets, the government perpetually borrows for railways, airports and ports. It stubbornly retains comatose refineries and the gigantic but idle Ajaokuta steel complex, fails to effectively block fiscal leakages, runs an oversized bureaucracy and has not reformed its tax system that sees less than 20 per cent of the taxable adults and businesses paying up. At 6.1 per cent, tax-to-Gross Domestic Product ratio is far less than the 17.5 per cent average in Africa. Widening the net and compelling tax payment, especially among the high income earners, hold prospects of huge revenue inflow.
Loans should be taken only for viable infrastructure projects that can repay, stimulate production and create jobs. The government justifies loans on the grounds that debt-to-GDP ratio is low; but this has risen to 16.1 per cent and the IMF has repeatedly warned that the danger lies in the revenue-to-debt ratio. The Finance Minister, Zainab Ahmed, trumpets that the country has a revenue problem, not a debt problem but there has been little progress in diversifying revenue sources. Without foreign direct investment, which fell to $2.2 billion in 2018, government cannot significantly raise infrastructure, create millions of jobs and reduce imports.
Nigeria is digging deeper into an unsustainable debt hole. Officials delude themselves when they cite the world’s most successful economies’ debts to justify borrowing: Japan’s $4.35 trillion external debt and 237.54 per cent debt-to-GDP, United States’ $20.26 trillion debt and 106 per cent debt-to-GDP ratio, and China’s $5.2 trillion national debt and 55.36 per cent debt-to-GDP ratio, do not derive from direct loans, but from the issuance of treasury instruments that reflect their strong economies and currencies.
The Senate should reject the loan request outright. Buhari should go back to the drawing board and opt for limited loans targeted at only those infrastructure projects with immediate prospects of generating revenues, supporting production and creating thousands of jobs. Quick wins are available in immediately privatising the loss-making refineries and supporting experienced foreign investors to revive them, as well as all other oil and gas downstream assets. Like Saudi Arabia and European countries, the airports and ports need to be similarly given as concessions to best global brands while extensive reforms should be undertaken swiftly to draw in FDI. The $62 billion the Supreme Court said oil companies owed from production sharing contract obligations and another $20 billion in unpaid royalties should be recovered.
Without power, the economy cannot fly; government should urgently review the power privatisation and take decisive measures to let go of its stake in the distribution and generating companies and lure new foreign investors.
Nigeria suffered for three decades under a debt overhang, Buhari and the Senate should not plunge her into a worse one.