There has been no let-up in Nigeria’s borrowing spree. Last week, President Bola Tinubu requested the Senate to approve another $7.8 billion and €100 million loans. Coming after his N2.18 trillion supplementary budget approval that will likely be partly financed by loans, the country’s financial health is looking feebler. Tinubu and NASS should adopt a more cautious approach to debt and seek other means of raising revenue.
Captured under a 2022-2024 plan packaged by the immediate past administration, the President explained that the funds would be used to finance diverse projects “with specific emphasis on infrastructure, agriculture, health, education, water supply, security, and employment as well as financial management reforms.”
He said they would be implemented in all the 36 states and the Federal Capital Territory and were based on technical economic evaluations and their expected contributions to the country’s social economic development, including job-creation, entrepreneurship, poverty-reduction, and food security.
Nigeria is at a critical juncture; the economy is tumultuous, poverty and hunger afflict many, businesses are battered, and infrastructure is inadequate and dilapidated. Inflation hit 26.72 per cent in September, and food inflation 30.64 per cent. The last credible official jobless rate is 33.3 per cent.
Public finances are wretched. While expenditures are ballooning, revenue inflows are narrowing. The main export earner, crude oil, is beset with production hitches and massive theft. While the World Bank said the Federal Government spent 96.3 per cent of its revenue on debt servicing in 2022, the government’s Budget Implementation Report 2022 indicates 106 per cent of realised revenue!
Tinubu believes the country’s parlous state makes borrowing inevitable. His predecessor, Muhammadu Buhari, took Nigeria’s total public debt stock from N12.11 trillion in June 2015, to N87.38 trillion by June 2023.
Tinubu believes the country’s parlous state makes borrowing inevitable. His predecessor, Muhammadu Buhari, took Nigeria’s total public debt stock from N12.11 trillion in June 2015, to N87.38 trillion by June 2023.
Tinubu has since taken the baton on May 29, and has been taking delivery of previously negotiated loans and new ones. A princely N819.5 billion package that included a N500 billion “palliative” was recently approved. Multilateral agencies, pleased with Tinubu’s uncritical swallowing of their standard prescriptions – notably petrol subsidy stoppage and flotation of the naira – have been dangling even more loans to “mitigate” the effects.
The African Development Bank is offering $1 billion and the Word Bank $2 billion. The IMF has also offered to lend.
But these come with costs. While the debt-to-GDP ratio of 21.6 per cent (as of March 2023) appears comfortable compared to the African average of 24 per cent, servicing costs have become prohibitive. The Debt Management Office is alarmed. In its debt analysis report in June, it said debt service-to-revenue ratio had reached 73.5 per cent, exceeding the government’s own ceiling of 40 per cent.
It described this as unsustainable, emphasising that it “cannot support higher levels of borrowing.”
Tinubu and his team should therefore be creative. There are alternatives to debt. These include privatisation and concession of public enterprises undertaken with professionalism, honesty, and focus to raise revenues, free up funds, and attract foreign and domestic private investment.
Another is to liberalise the railways, ports, and aviation sectors, with the government agencies that own them reverting to the “landlord model,” while their assets, infrastructure and operations are run by competent international and domestic private operators under effective business-stimulating regulatory oversight.
Ongoing tax reforms should enhance productivity and investment, and dramatically widen the tax net and enforce compliance.
Borrowing for consumption, or to service the bureaucracy and the luxurious tastes of officials and legislators should be stopped. Henceforth, loans should be taken only for investments and infrastructure that deliver medium to long-term sustainable economic benefits, generating jobs, taxes, and positive value chain outcomes.
Tinubu should eliminate waste, and corruption and the daily theft of 400,000 barrels of crude. Agencies failing to remit, or delay remitting collected revenue should not be tolerated.
Resolutely, he should halt the headlong plunge into debilitating debt.
