For a country that made a song of its exit from the London and Paris Clubs cartel of creditors in 2015/16, current apprehensions at the nation’s debt trajectory should not be entirely surprising. If merely by the latest figures from the Debt Management Office (DMO) which reveal the surge in the country’s external debt from $10.32bn in June 2015 to $22.08bn by the end of June (a 114.05 per cent leap), and the leap in foreign commercial loans from $1.5bn in June 2015 to $8.billion by June – a leap of 486.67 per cent; an alarm would seem justifiable.
However, viewed in the context of the dire situation in which the nation found itself mid-2015, the issue really isn’t whether the country should have borrowed or not. Amidst unprecedented infrastructure gap, oil prices had fallen to precipitous levels, bringing with it, a severely shrunk treasury. To compound matters, oil production suffered – no thanks to the activities of militants in the restive Niger Delta. The security situation across the country was just as dire – to put it mildly. With a GDP to tax ratio of 6.1%, the inflow of tax revenue was palpably inadequate to bridge the revenue gap.
Such was the background that informed the latest cycle of borrowing by the Buhari administration. Although, concerns were raised by the International Monetary Fund (IMF) and the World Bank on the surge in the GDP to debt ratio from 13.2 percent in 2015 to 17.6 per cent in 2016, and then to 21.3 per cent in 2017, which the IMF further projected would hit 24 per cent in 2018, it seemed a necessary bridge to cross at least until such a time the country is able to address the miserable tax-to-GDP ratio. The massive infrastructure projects in railways, power sector and road construction would bear out the wisdom in that choice in due course.
However, if we understood the debt surge in the context of that particular exigency, far less agreeable is an aspect of the choice that appears designed to take the nation back to that better-forgotten era of debt peonage. Clearly, if the DMO figures with its revelation of a massive commercial debt haul of US$8.8 billion (39.85 per cent of the entire debt stock) over the course of the last three years is any instructive, it is one of a country yet to learn the appropriate lesson from its experience with the debtor cartel of London and Paris Clubs.
To the extent that foreign commercial loans are far more expensive and certainly more difficult to restructure than multi-lateral and bilateral loans, which by their nature are concessionary, only the factor of desperation would explain why a country already choking under the weight of debt-servicing would ratchet its store of foreign commercial loans by as much as 486.67 per cent only because it could afford to.
It is therefore not sufficient for the Minister of Finance, Kemi Adeosun, to suggest that the debts are “conservative, by global standards.” Such a position, while true, deliberately glosses over substantive issues of need, economy and national interest – considerations that should guide the choice of what debt instrument to pursue. It bears stating that loans, when they become necessary, must be on need-basis and strictly on terms that are advantageous to the country. For now, our view is that the surge in foreign commercial loans, no matter the efforts put into justifying it, offers at best cold comfort.
It is high time tax authorities did something urgently about the tax-to-GDP ratio as a first step to shoring up revenue and to reduce the need for loans, whether foreign or domestic.