Despite strident calls to curb its increasingly unnerving appetite for debt, the Federal Government’s three-year spending plan, beginning 2020, envisages an additional N4.6 trillion borrowing. Should the 2020-2022 Medium Term Expenditure Framework move according to plan, total national debt would have risen from the current N24.94 trillion to N29.55 trillion – possibly higher if ongoing negotiations for multiple loans succeed. The undergirding structure of the economy, however, requires a robust mix of private capital, credit and public investment by the government to spend its way into recovery.
Pending legislative approval, government will borrow N1.7 trillion from domestic and foreign creditors in 2020, N1.6 trillion in 2021 and N1.3 trillion in 2022. The sums are to be split evenly between the domestic and foreign markets. Total public debts stood at $81.27 billion by March 2019, according to the Debt Management Office, of which $25.6 billion (N7.86 trillion) or 31.51 per cent made up the foreign debts, while $55.66 billion (N17.08 trillion) was domestic debt. Indeed, Nigeria has a chequered history of debt. Once renowned for fiscal prudence, including prosecuting a three-year civil war (1967-70) without borrowing a dime at a time that agriculture was its main export earner, the country descended into decadence and borrowing, ironically, after petrodollars began to flow in. A $30 billion overhang to the Paris Club of International Creditors (and another $5.5 billion to the London Club) was successfully exited in 2005/6 at the painful cost of a $12.6 billion payout.
But our fatal embrace with debt has returned with a vengeance: we borrowed even when oil prices rose to $100 per barrel-and-more, and after depleting foreign reserves and savings in the Excess Crude Account that reached $65 billion early 2007. While other OPEC member countries splashed on public infrastructure, Nigeria squandered its resources on waste and corruption. Kuwait’s five-year development plan 2010-2014, for instance, rolled out an ambitious $130 billion infrastructure plan.
By the time oil prices went into a free fall from August 2014, borrowing for consumption or dubious projects accelerated. The Muhammadu Buhari administration has continued the borrowing binge in response to lower revenue receipts, recession and rising recurrent costs. Very little is ever left for infrastructure. External debts that stood at $10.32 billion in June 2015 rose to $25.6 billion by March this year, an increase of $15.3 billion. Meanwhile, there are ongoing talks to borrow a further $2.5 billion from the World Bank in addition to $2.4 billion it borrowed from the same bank last year, while over $5 billion is being sought from China for railway projects. Sadly, the only hope of repaying these loans is in the oil and gas revenues which prices are subject to upheavals and uncertainty well beyond our control.
When in prolonged recession, conventional wisdom is that a country should spend its way out – boosting production, preserving jobs, sustaining consumer demand and increasing revenue. Loans do come in handy here. The government continues to argue that it needs to borrow, citing more often the country’s relatively acceptable debt-to-Gross Domestic Product ratio. But this has risen sharply over the past decade from less than 15 per cent to 27.37 per cent, according to the World Population Review, higher than the 23-24 per cent the government claims. Besides, global agencies have warned that the real ratios to watch are debt-to-revenue and debt servicing-to-revenue. In June, the African Development Bank sounded another alarm that debt servicing was taking more than 50 per cent of all government’s revenue, higher than the 17 per cent average for West Africa.
The International Monetary Fund had also cautioned in November 2018 that interest rates that had, along with penalties, created our last debt trap, would make it difficult for the country to achieve the Sustainable Development Goals and prevent the achievement of the required double digit GDP growth necessary to reduce poverty.
The Finance and Budget Minister, Zainab Ahmed, admitted defensively that Nigeria has “a revenue problem,” but not a debt problem. Actually, the country has both and solving them would require thinking outside the borrowing box. The economy needs massive infusion of investment, not only to reverse the wide infrastructure gap, but also to stimulate the productive sectors. We need to come to the realisation that government alone cannot fund railways, airports, power infrastructure, ports, steel plants and refineries, among others. These need massive domestic and Foreign Direct Investment. Second, to raise money and, at the same time, save what is currently wasted, there should be an urgent, efficient programme of privatisation and liberalisation of these key sectors. Government should block leakages, drastically reduce the cost of governance and prune the size of the bureaucracy.
Third, there should be an aggressive effort to improve the operating business environment to boost investment in agriculture, mining, manufacturing, SMEs and start-ups. It is foreign capital that provides the critical spark that transforms an economy: loans alone cannot accomplish this. Credit to pay salaries of civil servants and public officials and run a cumbersome, unproductive bureaucracy is counterproductive.
The world has a debt problem and external debt of developing countries rose to $7.8 trillion, says the World Bank, with Nigeria contributing 0.33 per cent of this. But the country lacks the infrastructure and the long-term economic resilience to continue to take loans indiscriminately, especially for consumption or for politically motivated projects.
Limited well-structured public loans, added to greater investment by foreign and domestic investors for power, railways and ports, highways and dams, will boost the economy and create jobs. The economy should be unshackled by a private sector-led growth. When the government frees itself of spending on refineries, ports and steel, it can then concentrate its funds on social services, training and highways. Loans taken will then be only for projects of utmost national importance and for which expected revenues will be able to repay without saddling coming generations with irredeemably loan burden.
