The new plan by the federal government to borrow another set of funds from the international community has raised fresh concerns by economic analysts who say the country’s high level of debt has not reflected in the quality of life of Nigerians.
President Muhammadu Buhari on Wednesday written to the National Assembly seeking approval for more $4.179 billion and £710 million external loans, amounting to N2.5 trillion from the international community.
The fresh loan request, when approved, would raise the country’s debt profile to N35 trillion.
However, analysts have decried the continued borrowing by the federal government over the years, which they said have not reflected in the development of the nation’s economy as shown in the high rate of poverty, hunger and deprivation in the land.
Nigeria has maintained the infamous position as the poverty capital of the world.
Data from the Nigerian National Bureau of Statistics (NBS) indicated that 40 per cent or 83 million Nigerians lived in poverty in 2020. Although Nigeria’s poverty profile for 2021 has not yet been released, it is estimated that the number of poor people will increase to 90 million, or 45 per cent of the population in 2022.
Also using the World Bank’s income poverty threshold of $3.20 per day, Nigeria’s poverty rate is put at 71 per cent.
In addition to these, the World Food Programme and the Food and Agriculture Organisation in July, listed Nigeria as one of the world’s newest highest alert hunger hotspots, further confirming the palpable level of poverty and hunger in the country.
Commenting on the federal government’s plan for fresh borrowing despite the country’s current debt profile, a senior economist and partner at SPM Professionals, said while Nigeria’s debt profile had risen by an average of 20 per cent in the last five years, the country’s growth rate had failed to reflect the level of debt, remaining below two per cent in the last five years.
“If you look at what is happening on the impact of debt, as we are speaking Nigeria has borrowed on the average of 20% in the last five years, but when it comes to growth rate, the growth rate on average in the last five years is below 2%.
“We all can do the math. Is the loan adding to us as a country as we continue to borrow more and more money? Unfortunately, the impact of loan continues to diminish out as poverty, hunger and deprivation become order of the day in our country,” Alaje told LEADERSHIP Sunday.
Alaje also pointed out the implication of Nigeria to service the debt in the face of dwindling revenues.
Recall that the chairman, Economic Advisory Council (EAC), Dr. Doyin Salami, had earlier lamented that with debt service-to-revenue ratio at 97.7 per cent (January to May 2021), the country’s public debt profile was unmaintainable. He added that the country should look beyond the debt-GDP ratio, which according to the Debt Management Office (DMO) is considered sustainable.
“What are the costs of this loan apart from the interest rate? The position of our debt profile right now is N35.5 trillion that is what the Debt Management Office puts the figure. This is another foreign set of loans we are requesting for. We already know what the exchange rate is saying particularly at the parallel market, and I have a lot of worries as to what this will be. Therefore, I will say the government should start considering other alternative sources particularly as it has to do with revenue” he said.
In his reaction, the managing director, Credent Investment Managers Ltd, Mr. Ibrahim Shelleng, also said the current debt level is very worrisome considering the current revenues realised by the government.
“We currently spend almost 90 per cent of actual revenue on debt servicing and that’s a worry. Whilst the debt to GDP ratio may show that we are doing better than the likes of Ghana and India, etc, it must be put in context. Our debt is being used mainly to finance recurrent expenditure.
“However, if some of the debt is being used to create revenue generating projects then perhaps the projected future cash flow may address the current debt burden,” Shelleng said.
Amidst these fears, the federal government has said there is no need for panic, saying the total debt to Gross Domestic Product ratio will not rise above 35 per cent from now till 2024. The government also said the nation’s debt is sustainable.
Director-general of the Debt Management Office, Ms Patience Oniha who made the remarks in an interaction with our correspondent, said Nigeria’s debt can only become unsustainable if Africa’s largest economy does nothing about improving revenue generation, and continues to focus on borrowing alone.
The federal government had set a 40 per cent debt ceiling for itself.
From the projection that was done by the executive which was submitted to the National Assembly, the federal government estimates that from 31.94 per cent in 2021, the debt to GDP ratio would rise to 32.48 per cent and 32.96 per cent in 2022 and 2023 respectively, with the figure expected to rise to about 35 per cent by 2024.
“Our debt to GDP, by the time we add the Ways and Means advances will certainly get to 35 per cent or thereabout. Look at the MTEF; like I said, we are being realistic and transparent with the public. By the time you add from this year to 2024, and then you add that huge Ways and Means advances there, it will grow to that level,” the DMO DG said.
Besides the Central Bank of Nigeria’s overdraft popularly known as Ways and Means which started with N10 trillion, there are other borrowing plans in the federal government’s Medium Term Expenditure Framework for the next three years that are expected to contribute to pushing up the debt ratio.
Oniha said government is working on recognizing the large government overdraft, restructure the overdraft (convert it into a tenured debt) and then process approval through the Federal Executive Council and the National Assembly to be able to include them in the public debt stock.
On fears that the debt would soon become unsustainable, Oniha said that is unfounded, as that can only happen if Nigeria only borrows without generating revenue.
“I hate to talk about when does the debt becomes unsustainable. I think the reality is that will happen if only we don’t do anything about revenues; if we just continue to focus on borrowing. And we’ve also shown you pictures of other countries. They borrow but they also have revenues. Their eyes are very clear on revenues, including countries in Africa, so what’s wrong with us, what’s wrong with doing the same thing? That’s where I think the fear should come from. So, we should focus on revenues.
“There are a number of initiatives the minister of Finance, Budget and National Planning is running it, the strategic revenue growth initiative and all of that discipline around ensuring that state owned enterprises remit their surpluses to the government. There is a whole lot going there. The initiative is championed by the office of the DG budget and OAGF,” the DG said.
Oniha said Nigeria has a lot of concessional debt in her external debt stock. From the nation’s N35.465 trillion total public debt, N13.711 trillion is owed to foreign borrowers, including China, World Bank and IMF drawdown. The federal government has a maximum share of the debt at 83.07 per cent, while the states and FCT owe 16.93 per cent.
President Buhari sent a letter to the lawmakers for approval of fresh borrowing under the medium-term external borrowing plan.
The DMO DG said there is need to do a proper management of the foreign exchange risks associated with the external loan portfolio.
The Ways and Means advances is government’s current account operated by office of the accountant-general of the federation.