The country’s increasing debt stock is disturbing. At the end of its January Monetary Policy Committee meeting, the Central Bank of Nigeria warned that the country risked returning to the pre-2005 Paris Club debt level, if it continued with its current borrowing obsession.
As of September 30, the external debt commitment of federal, states and the Federal Capital Territory, Abuja was $21.5 billion, according to statistics from the Debt Management Office, just as the local debt stock was N15.8 trillion. Nigeria had a foreign debt overhang of $30 billion in 2005, but exited it following a debt relief of $18 billion from the Paris Club of Creditors, which paved the way for the country to pay $12 billion in 2006, climaxing the debt forgiveness.
Interestingly, multilateral institutions such as the World Bank and the International Monetary Fund had earlier expressed similar concerns. The World Bank Chief Economist for African Region, Albert Zeufack, had in April 2017 noted that Nigeria’s debt to revenue ratio was high, though the debt to GDP ratio was low. The latter argument has always misled the country’s leaders to go on a borrowing binge, which landed it in the previous debt trap. From $10.32 billion foreign debt as of June 30, 2015, the country’s external debt commitment in three years increased by $11.77 billion.
Despite these warnings, the Federal Government plans to borrow more in 2019, targeting to make its foreign debt 40 per cent of the country’s total debt stock. The move is part of efforts to take advantage of cheaper lending rates abroad. The foreign debt percentage now stands at 30.17 per cent. It is targeted that, by December, the 60:40 ratio for domestic and external debt portfolio mix would have been achieved.
Borrowing itself is not out of place if judiciously used. But Nigeria borrows to pay salaries of workers, as some former ministers of finance admitted. It has collected a $3.1 billion loan for railway construction under the Muhammadu Buhari Presidency. In 2010, a Chinese firm, ZTE Communications, was awarded a $470 million contract for the provision of Closed Circuit Television cameras for Abuja and Lagos; in 2013, a $500 million loan was taken from China to upgrade four airport terminals in Abuja, Lagos, Kano and Port Harcourt. The last administration reportedly borrowed $1.6 billion for refineries’ turn around maintenance.
According to the Minister of Transportation, Rotimi Amaechi, another $6.7 billion credit facility from China is underway for the Ibadan-Kaduna rail project. “We have signed the contract but we have not got the loan,” the minister explained last year. The Group Managing Director of the Nigerian National Petroleum Corporation, Maikanti Baru, had hinted in 2017, at a conference in Houston, USA, of government’s desire to borrow $16 billion, out of which $6 billion would be used to overhaul the refineries.
The obsession with these debts accumulation should stop. A thorough audit of how they have been utilised has become imperative. Though the Buhari administration has justified its borrowings with its predecessor’s failure to save when oil prices averaged $100 per barrel for almost five years, the brakes should be applied now. No economy experiences meaningful growth when it spends more of its resources to service debts annually than what it commits to providing badly needed infrastructure. Regrettably, the country is embroiled in such an obtuse situation, with the N2.26 trillion provided in the 2019 Appropriation Bill for debt-servicing as against the N2.03 trillion for capital expenditure.
Since these loans are serviced mainly from oil revenue, fidelity to repayment schedules will always be at the mercy of volatility in the oil sector. This breeds economic instability. Nigeria has been on this trajectory since June 2014, when oil prices in the global market crashed. The IMF Director, African Department, Abebe Selassie, on the sidelines of the IMF/World Bank Group meeting in Washington in April 2018, said it point-blank that debt-serving for Nigeria without hiccups was not feasible with its low revenue base.
Nigeria’s low revenue stems from its dependence on the oil economy, weak tax base, failure to meticulously collect its revenues and taxes, mismanagement and looting of the treasury. These negative trends should be reversed to firm up inward-looking strategies to generate more revenue and manage resources prudently, instead of always borrowing.
The country is currently being owed $17 billion by some oil companies from undeclared or stolen crude oil between 2011 and 2014. The Attorney-General of the Federation and Minister of Justice, Abubakar Malami, who made this submission before a House of Representatives panel in 2017, said legal action might be considered in recovering the money. This single anomaly says a lot about oil revenue leakages. Unfortunately, the recovery has yet to be made.
On January 23, the Federal Government issued a 14-day ultimatum to International Oil Companies to pay all outstanding revenues on Production Sharing Contracts in compliance with a Supreme Court judgement. Just one of such firms – Statoil Nigeria Limited – was directed to pay $5.5 billion. These are signs that, with leakages blocked and strict legal regimen enforced, the reckless public sector debt accumulation is unnecessary.
The wealthy hardly pay tax and get away with it. Since 2016, 6,772 billionaires with between N1 billion and N5 billion in their bank accounts, who evaded tax, are walking the streets free. In other climes, such offence is criminal and offenders are treated accordingly. This was what happened to Timothy Stubbs, a business man in Colorado, the United States. He was jailed for 88 months in 2015 for tax evasion and failing to file personal and corporate tax returns. Despite his $7 million earnings between 2005 and 2007, he failed to pay tax and fled to Costa Rica; but was repatriated to face justice.
With fiscal policies and no-nonsense implementation strategies, Nigeria can improve its revenue profile to make it less dependent on China and other multilateral credit institutions. Therefore, Nigeria should stop mortgaging its future through these avoidable borrowings.