The federal government’s excessive borrowing amid rising debt is not good for the economy. Despite advice from the Debt Management Office (DMO) on revamping the economy, the government has continued in its borrowing spree. The other day, the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, disclosed that the federal government had secured $2.25billion single-interest loan from the World Bank.
According to the minister, the facility offers a 40-year term repayment period, with ten years moratorium at one per cent interest rate. The minister made the disclosure at the recent Spring meeting of the World Bank and International Monetary Fund, in Washington DC, USA.
Not long ago, President Bola Tinubu sought the nod of the National Assembly to borrow $7.8billion and €100 million (equivalent of $106million). The amount, he said, would be used to fund various projects across the country, and in various sectors of the economy. At the World Bank/IMF meeting, Edun revealed that the government would soon benefit from budgetary support and low interest funding from the African Development Bank (AfDB). Last year, the AfDB indicated interest in assisting Nigeria in mitigating the economic shocks arising from the removal of fuel subsidy. The loan from the World Bank at one per cent interest rate is seemingly a good deal.
Basically, there is nothing wrong with borrowing, provided that the loans are tied to specific projects that will stimulate the economy. However, Nigeria’s experience with loans has not been encouraging. Last year, the DMO urged the government to put a moratorium on fresh loans, stating that 73.5 per cent of last year’s revenue was used for debt servicing. Currently, about 96 per cent of government revenue is used to service debts. This is unsustainable.
At present, Nigeria’s total public-to-GDP ratio is projected to increase to 37.1 per cent at the end of this year. This has kept Nigeria’s public debt stock at 38 per cent of the Gross Domestic Product (GDP) and pushed the debt service to revenue ratio from 83.2 per cent in 2021 to 96.3 per cent last year. This represents about 12.9 percent rise.
Data from the CBN and the DMO point to the fact that for the economy to be in fine fettle, government needs to generate at least N15.5trillion monthly in order to meet its crucial financing obligations. So far, government has not been able to generate 50 per cent of that amount. This is further challenged by government’s inability to ramp up oil production target of 2 million barrels per day from the current 1.6 million.
Also, tax to GDP is still at 10 per cent of GDP. Nigeria needs between 18 to 22 per cent tax to GDP ratio to stimulate economic growth. The government should diversify the economy. It should involve key strategic plans to driving sustainable growth that will mitigate debt risks. Our reservations on government’s borrowing binge have not changed. Unfortunately, Nigeria’s rising debt profile is rising steadily and far beyond the acceptable threshold.
The Buhari administration left a huge debt stock of about N77trillion, in domestic and external borrowings, including Ways and Means (W&M) advances from the CBN. Nigeria’s debt stock might reach over N90trillion by year end. There are reports that the current administration is already engaged in another round of W&M loans from the CBN. President Tinubu admitted at the recent Special World Economic Forum (WEF) in Riyadh, Saudi Arabia that Nigeria would have faced potential bankruptcy if his government had not removed petrol subsidy, adding that the country’s debts were getting out of control. Loans must target specific sectors of the economy. The government should tackle the economic hardship and rising cost of living. At this critical time of economic challenges, institutional reforms are key ingredients for sustainable development. They are also crucial to determining areas to use utilize the loans for. Loans should be for viable projects. They should not for consumption or embezzlement.
With the $2.25billion loan coming at this time that the economy is in the woods, our escalating debts should be kept in check and the loans closely monitored. Government should reappraise its financial profile and expenditures, avoid excessive borrowing, and ensure prudent management of loans. It makes no sense for government to continue to plead with the people to tighten their belts, when government officials are living in opulence. This is the time for government to demonstrate that leadership is for service.