Paying back rising loan portfolio
FOR WELL FOUNDED CONCERNS, Nigeria’s burgeoning public debt is putting many Nigerians on the edge once again. While public debt stock continues to rise, the prospects of timely and default-less repayment recede in the face...
FOR WELL FOUNDED CON CERNS, Nigeria’s burgeoning public debt is putting many Nigerians on the edge once again. While public debt stock continues to rise, the prospects of timely and default-less repayment recede in the face of thinning sources of revenue. Just last week. Mohammed Nani, executive chairman of the Federal Inland Revenue Service, said revenues from taxation were what had been keeping the Nigerian economy afloat.
This is scary considering the fact that over 25 percent of the federally collected revenue is devoted to debt servicing. In June, the senate raised an alarm that Nigeria’s total debt profile would stand at N33 trillion, if President Muhammadu Buhari got approval for the $22.7 billion foreign loan request. The loan request had since been processed and approved by the senate.
Sadly, Nigeria’s debt profile has been rising since 2015 when the present administration of president Mohammadu Buhari assumed the mantle of leadership. By December 2006, after Nigeria had paid off Paris Club, Nigeria’s external debt was $3.5 billion. Meaning that in a little over five years, the country’s debt has risen by over 1000 percent! Yet the socio-economic conditions of the vast majority of the citizens remain deplorable and pathetic.
Nigeria’s Eurobonds accounted for $10.86 billion or 39 per cent of external debt as at April 7, 2020. The country paid $771 million in interest on its Eurobonds last year compared with $329 million in debt service to multilateral creditors, according to the DMO. Total borrowings from China as at March 31, 2020 stood at $3.121 billion, which the DMO asserts to be concessional loans with interest rates of 2.50 per cent per annum, 20 years tenor and seven years grace period. Borrowings from the IMF and the World Bank have increased this year (almost $7 billion).
Godwin Emefiele, governor of the Central Bank of Nigeria, had in a January 2019 Monetary Policy Committee meeting cautioned the Federal Government against Nigeria’s rising debts profile. Emefiele said the country’s debts profile is alarming. According to the CBN Governor, “On external borrowing, the committee noted the increase in debt level advising for caution, noting that it could fast be approaching the pre-2005 Paris Club level.”
An economist, Bismarck Rewane, who is the CEO of Financial Derivatives Company (FDC) and member of the Federal Government’s Economic Advisory Council constituted by President Muhammadu Buhari, together with other analysts in the FDC, warned in their bimonthly economic update in January that the country’s debt had grown by 214.90 per cent over the past six years, from N8.32trillion in June 2013 to N26.2trillion as of September 2019. “It is vital to employ proactive measures to reduce the current debt level,” they said.
Similarly, the Lagos Chamber of Commerce and Industry (LCCI), cautioned the federal government on the continuous use of debt to meet its fiscal obligations especially at a time the country is struggling to generate adequate revenue. The chamber advised that the option of equity financing should be rigorously explored since it is a better and more sustainable financing strategy that could be deployed to bridge fiscal deficit.
Toki Mabogunje, President of the chamber, who gave the warning, said the Lagos Chamber was deeply concerned about the country’s rising debt portfolio. According to official statistics from the Debt Management Office (DMO), public debt stock increased by 4.5 per cent to N28.63 trillion as of March 31, 2020, from N27.40 trillion as of December 31, 2019.
“We note the Federal Government’s resolve to raise funds locally and externally to bridge the deficit in the fiscal budget. The Federal Government has secured $3.4 billion and $288.5 million credit facilities from the International Monetary Fund (IMF) and African Development Bank (AfDB) respectively, while discussions are on-going for another $1.5 billion facility from the World Bank. This could possibly push the country’s debt stock to around N33 trillion by year-end, equivalent to 22 per cent of GDP.”
Just last week, Nigeria’s hope of buoying up the treasury with a $1.5 billion loan from the World Bank suffered a delay as the board of directors of the bank could not meet on August 6 as earlier scheduled. The money represents the first tranche of the federal government’s $3 billion request from the World Bank.
Zainab Ahmed, finance minister, had in June disclosed that the country expected that when the board of the World Bank meets on August 6 (yesterday), the $1.5 billion facility the country requested for would be approved.
“We have met largely all the conditions for the facility and we are on course.
And the amount that we are raising in the first instance is $1.5 billion for the federal government and around September or October, we are hoping to get the facility that is meant to support the state and the amount is between $1 billion and $1.5 billion,” the minister had stated.
In the face of dwindling revenue, the federal government needs to be proactive in finding new revenue sources and resort less to external borrowing because repayments, when the fall due, may not be forthcoming and timely. We should do everything to avoid going into credit default status like Argentina, Greece and Venezuela with damning economic consequences.
When it happens, we would not only lose the right to borrow, but slump in sovereign credit rating and become another pariah or failed state, notwithstanding our enormous resource endowment.