The nation’s budgetary provisions for debt servicing could rise to N3 trillion if the Federal Government goes ahead with its $29.96 billion loan request.
President Muhammadu Buhari had last Thursday re-submitted a request to the Senate seeking approval for a $29.96 billion loan. The Eighth Senate had in November 2018 unanimously thrown out the request, saying the letter conveying it was not accompanied by a borrowing plan.
With the loan, budgetary provisions for debt servicing would mount from a yearly average of N290 billion to N870 billion. Besides raising the country’s total obligations above $113 billion (about N34 trillion), the yearly debt service provision in the budget would near N3.2 trillion, with worsening budget deficit, unless the revenue base increases significantly.
Currently, the Federal Government estimated N2.45 trillion for debt servicing in the soon-to-be approved 2020 budget. This would cater to interest payments of $83.88 billion worth of obligations. The planned loan is equal to 35 per cent of this total.
Also, 35 per cent ($30 billion) of the country’s total debt, on average, accounts for more than N800 billion of the N2.45 trillion in the 2020 budget. This proves that the new debt will pressure the weak revenue once it is sealed.
Particularly, the Lagos Chamber of Commerce and Industry (LCCI) and Manufacturers Association of Nigeria (MAN) have expressed concerns about the Federal Government’s ability to service its debts, describing the new request as troubling.
They lamented that the debt profile grew from N12.6 trillion in 2015 to N25.7 trillion in the second quarter of 2019, an increase of 104 per cent. They also noted that in the 2020 budget, debt service commitment and recurrent spending are beginning to crowd out capital expenditure. This trajectory, according to them, is not consistent with the country’s national aspiration to build infrastructures and a competitive economy.
“Care should be taken to avoid a full-blown debt crisis. For instance, the debt service provision in the 2019 budget was a whopping N2 trillion, whereas the total capital budget was N2.9 trillion. This implies that the debt service commitment was 70 per cent of capital budget allocation. Debt-to-revenue ratio was about 30 per cent, which is also on the high side,” said LCCI’s Director-General Muda Yusuf yesterday.
MAN’s Director General Segun Ajayi-Kadir advised: “There is a need to clarify the new loan request in relation to the 2020 budget and the 2020-2022 medium-term expenditure framework. Borrowing should strictly be in line with Section 41 of the Fiscal Responsibility Act which stipulates that government at all tiers shall only borrow for capital expenditure and human development, provided that such borrowing shall be on concessional terms with a low-interest rate and with a reasonable long amortization period.”
He noted further: “Government needs to look beyond tax credit in its quest for more complementary funding sources for infrastructure. We should be looking more in the direction of equity financing. But for this to happen, the policy and regulatory environment must be right. It is also critical to review the spending structure of government and the cost of governance. The ballooning recurrent expenditure, in the face of declining revenue, is cause for concern.”
In his reaction, a member of the House of Representatives, Sergius Ogun, vowed that there would be no easy sailing for the loan request as some lawmakers are ready to question its usefulness.
The member representing Esan North-East/Esan South-East Federal Constituency in Edo State said the lawmakers were prepared to take the “advocacy out of the House if we are not allowed to speak.” He also said they would give other lawmakers “the benefit of the doubt” but “they should let us know clearly what they want to use it (the loan) for.”
Also, a former deputy governor of the Central Bank of Nigeria, Dr. Obadaiah Mailafia, in a monitored programme, said the first loan of $1.3 billion by the current administration in 2015 for rebuilding the northeast has yielded no result. He, therefore, described the “request for the humongous debt” as “very unsettling, dangerous and unpatriotic.”
According to the Head of Tax and Corporate Advisory Services at PwC Nigeria, Taiwo Oyedele, “If the government must borrow at all, it has to be for self-financing projects, especially in critical infrastructures such as rail, power, ports and major roads. A detailed plan with specific projects should accompany the loan request before approval. There is the need for greater accountability and monitoring of public projects. In addition, there should be public-private partnership with competent contractors of repute rather than political jobbers to execute the specified projects.”
The lead director of Centre for Social Justice (CSJ), Eze Onyekpere, said the request was a step in the wrong direction. According to him, “In the last four years, we have spent more on debt servicing than we have done on capital expenditure due to the plethora of new debts incurred by the administration and there is no evidence to show that previous borrowing has been invested in capital expenditure or human development as stipulated in the FRA.”
Economist, Ayodele Akinwunmi, noted: “Nigeria cannot overcome the infrastructure challenges by borrowing to finance them. The Federal Government needs to involve the private sector using different Public-Private Financing Models. We can unlock a lot of private capital to finance the infrastructure, while government concentrates on security and setting policies that will improve the economy.”
On his part, development consultant and public affairs analyst, Jide Ojo, said the request raised a lot of posers. He asked: “Wouldn’t there have been variations to the cost estimates of three years ago? Why should we borrow that gargantuan sum of money again despite our current N25.7 trillion debt portfolio as at June 2019? Are there no alternatives to funding those critical infrastructures for which the president claimed he would use the borrowed fund to fix?
“Given the extant N2.45 trillion debt service allocation in the 2020 budget, which is almost at par with the total envelope for capital project, would we have it easy servicing the debt in the nearest future? Did President Buhari run this fresh loan request through his newly inaugurated Economic Advisory Council?”
Another economist, Ucha Wagbo, warned that except Nigeria was able to get concessionary loan terms at lower-lower single digit, “the government might be plunging the economy into a bigger ditch and tougher times.”
Meanwhile, Minister of State for Petroleum Resources Timipre Sylva has said Nigeria will commit to stabilising oil prices at the international market.
Speaking in a teleconference with the chairman of OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) and Minister of Energy of the Kingdom of Saudi Arabia, Abdulaziz Bin Salman Bin Abdulaziz Al-Saud and some other ministers at the weekend, Sylva said Nigeria was committed to the full implementation of the agreement entered into by OPEC and its 10 Non-OPEC member states, also known as the OPEC Plus or the Declaration of Cooperation (DoC) Countries.