Buhari’s insatiable appetite for debt

There is ample data showing that no government in the history of Nigeria has been so intoxicated on debt accumulation like the current administration of President Muhammadu Buhari. Nigeria’s debt stock has tripled under the current administration to N35 trillion as at June 2021.

Data from the DMO show that Nigeria’s foreign debts rose from $18.904 billion in 1985 to $28.718 billion in 1993 when General Ibrahim Babangida ruled the country. It expanded to $35.944 billion at the end of 2005. One year later, Nigeria’s debt stock fell to $3.544 billion after the country paid off a large chunk of its debt and received substantial reprieve in a debt management scheme championed by former President Olusegun Obasanajo and his then Finance Minister, Ngozi Okonjo-Iweala.

Nigeria’s government says debt is the only credible route to catalyse development.

The country is already one of the most heavily indebted countries in Africa. The World Bank recently ranked Nigeria fifth on the list of 10 countries to which it has the highest debt exposure.

The country’s debt stock, says Uche Igwe, a Senior Political Economy Analyst and Visiting Fellow at the LSE Firoz Lalji Centre for Africa, “has recently become a cause for worry among citizens, especially considering declining revenue as a result of the fluctuating price of oil. According to the figures from the Debt Management Office (DMO), Nigeria’s debt profile had risen to 31.009 trillion naira (USD 85.897 billion) as of June 2020. The apprehension of many observers is whether the projects financed by these loans may not have any meaningful impact on the economy, like the construction of the railway to Maradi in nearby Niger Republic at a whopping cost of US1.96 billion”.

Early this month, Nigeria’s President requested Senate approval for a plan to borrow more than 4 billion USD from international lenders for infrastructure projects, adding to a series of borrowings that have characterised the fiscal policy of the government.

“The projects listed in the external borrowing plan are to be financed through sovereign loans from the World Bank, French Development Agency, EXIM Bank and IFAD in the total sum of $4,054,476,863 and €710 million and grant components of $125 million,” Buhari informed the senate.

The nation’s external debt stock could hit over $36 billion if the National Assembly approves the $4.054 billion new borrowings requested by Nigeria’s government.

Nigeria’s mounting debt profile is a major concern despite the country having about $900 billion worth of dead capital in properties and agricultural lands as noted in a 2019 PwC Nigeria report.

A source of worry is the continuous deterioration in the country’s macroeconomic performance. Nigeria’s economic growth fell from 11.9% in 2015 to 0.51% in Q1 2021, and then rose to 5.01% in Q2 2021.

The rate of inflation rose from 9% to 17.38% during the same period, while the unemployment rate jumped from 9% in 2015 to 33% in 2021. The naira has depreciated by over 200% between 2015 and 2021.

“Criminal!”, was how former President Olusegun Obasanjo who in 2006 paid off Nigeria’s external debts described Mr. Buhari’s insatiable appetite for external loans, noting that, while borrowing was not a problem in itself, “what could be a problem would be what one is borrowing for and the plan or capacity to pay back.

“But if you are borrowing and accumulating debts for the next generation and the next generation after them, it is criminal. What are you borrowing for?

“If we are borrowing for recurrent expenditure, it is the height of folly. If we are borrowing for development that can pay for itself, that is understandable. Then the payment, how long will it take to pay itself?”

The former president recalled that in 1999 when he came to power, the country was spending $3.5 billion to service debts that kept on increasing.

The Economy

The economy has failed to grow fast enough to accommodate its bulging population since 2015, according to data by the National Bureau of Statistics (NBS).

“There’s been a lot of uncertainty, largely due to policy inconsistencies, about where people should invest. This cuts across various economic sectors.Since the current government came into power in 2015, there has been a lot of policy change with the “command and control” posture adopted in managing the economy,”says Ndubisi Nwokoma, a Professor of Economics at the University of Lagos. In a report for “The Conversation”, Mr. Nwokoma added, “these policy somersaults have caused capital flight. The political uncertainty played a role in the downward trend of markets. In the equities market, huge foreign portfolio investments were lost to the economy. There has also been a downturn in portfolio investments, fixed capital investment, foreign direct investments and capital importation…The result has been job losses and the dwindling capacity to create jobs”.

The last six years have been characterised by rising rates of unemployment and inflation, falling GDP and its attendant dwindling per capita income, poor investment in infrastructure, poorer standard of living, financial uncertainties and a general state of economic hopelessness.

The outcomes have been debilitating for Nigeria’s economy and people.

In 2020, the Nigerian economy shrank by 1.8%, its deepest decline since 1983, driven by capital outflows, intensified risk aversion, low oil prices, and shrinking foreign remittances. Though the country’s Gross Domestic Product (GDP) grew by 5.01% (year-on-year) in real terms in the second quarter of 2021, it followed a slew of negative and low growths over a five year period

Unemployment in the country has ballooned to one of the highest in the world. Figures from the National Bureau of Statistics, NBS, show that the unemployment rate in Nigeria rose from 27.1 percent to 33.3 percent from December to March 2021.

With a third of Nigerians out of jobs and unable to contribute meaningfully to the economic process, poverty has grown exponentially.

In 2018, the country overtook India to become the poverty capital of the world. It is estimated that over half of Nigeria’s population live in poverty. Buhari says he wants to lift 100 million Nigerians out of poverty by 2030

The most widely experienced shocks in the country continue to be increases in the prices of both major food items consumed (affecting 90% of households) and farming/business inputs (affecting 64% of households), says the World Bank

“Nigeria, said Shubham Chaudhuri, the World Bank Country Director for Nigeria in a June 2021 report of the bank, “faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity”.

Meeting with members of his Presidential Economic Advisory Council (PEAC) in September 2020, Buhari posited, “we have so many challenges with infrastructure. We just have to take loans to do roads, rail and power, so that investors will find us attractive and come here to put their money.”

In 2015, Nigeria’s total public debt profile, including domestic debt, stood at $63,806.45. By June 2021, this had increased to $86,571.80 according to DMO statistics.

Read Also: Nigeria’s debt to hit N38.68trn in 2021 – Finance minister

Currently, the country’s outstanding debts amount to about a quarter of its economic output. The International Monetary Fund recently warned that without major revenue reforms, the debts could rise to almost 36 percent of GDP by 2024, with interest payments taking as much as 75 percent of government revenue.

The problem, says Emmanuel Onwubiko, the President of Human Rights Writers Association of Nigeria (HURIWA), is that the “Muhammadu Buhari-led administration has done badly in the area of building up of national wealth and prosperity but has concentrated on borrowings from all sorts of places to be used in servicing the huge salaries of the multiple officials and politicians parading about as members of the Federal Government”.

According to him, “Nigeria maintained a healthy record as a Country that was somehow prosperous and not encumbered by foreign loans up until the emergence of the Muhammadu Buhari-led administration in 2015”.

However, Nigeria’s government asserts that the country does not have a debt problem. Finance, Budget and National Planning Minister Zainab Ahmed said in 2019 “I hear people say Nigeria has a debt problem. We don’t have a debt problem. What we have is a revenue challenge and the whole of this government is currently working on how to enhance our revenues, to ensure that we meet our obligation to service the government as well as to service debt.”

Nigeria’s total debt stock (foreign & domestic), as released by the Debt Management Office (DMO) as at June 2021 stood at N35.465 trillion as of June 30.

As of March 31, 2021, Nigeria’s total public debt stock was N33.107 trillion, or 87.239 billion USD.

Between the end of the first quarter and the end of the second quarter, the debt stock increased by N2.358 trillion.

The external debt, according to a breakdown of the national debt under review, was N13.711 trillion, or 38.66%, Domestic debt, on the other hand, was N21.754 trillion, accounting for 61.34% of the entire stock.

Multilateral institutions (World Bank Group and African Development Bank Group) own the majority of the debt, accounting for 54.88%, while Commercial debt (Eurobonds and Diaspora bonds) came in second with 31.88%, followed by bilateral debt (China, France, Japan, India, and Germany) with 12.70%. Promissory Notes account for 0.54% of the total.

Another Debt Trap, perhaps?

It was in 2006 that Nigeria exited the infamous debt trap represented by the Paris Club of creditors when the country through dexterous economic management and negotiations paid off a substantial chunk of its debt and had a large part written off.

Under Buhari, the country runs the risk of entering another debt trap if it keeps borrowing to fill the needs of recurring expenditure.

Nigeria’s ability to meet its debt obligations in the future is a serious cause for concern. Debt repayments, say Professor Stephen Onyiewu, the Andrew Wells Robertson Professor of Economics at Allegheny College, Pennsylvania, “are often made from revenue generation. At less than 5%, Nigeria has one of the lowest revenue-GDP ratios in Africa. The average for sub-Saharan African countries is almost 20%, and 30% for oil exporters”.

He noted that about 65% of government revenue and over 90% of foreign exchange earnings in Nigeria comes from the oil sector. Uncertainties in the global oil market and sluggish revenue growth, as well as the negative impacts of COVID-19 on the economy, imply that the country would face challenges generating enough revenue to service its debt.

“By October last year,” he further noted, “only 64% of the revenue expected from oil had been generated. Meanwhile, government expenditures have been growing faster than expected, meaning that the deficits will be covered by borrowings. More borrowings means that an increasing proportion of revenues generated will be devoted to debt service”.

Another source of worry about Nigeria, he believes, “may be related to the continuous deterioration in the country’s macroeconomic performance during the past five years. Creditors are often concerned about debtor countries whose economies are not well managed, and perceive them as risky borrowers. Nigeria’s economic growth fell from 11.9% in 2015 to 2.2% in 2019, and then turned to negative 1.8% in 2020 because of COVID-19”.

Pat Utomi, Professor of Social and Political Economy at the Pan-Atlantic University warned in a recent interview with Channels TV, that Nigeria was going through a very trying period.

“This is a time for statesmen to emerge”, He said. The Nigerian economy is not growing in any way or shape that can accommodate its needs, population growth, etc. It means that in terms of absolute numbers of people living in poverty, this is one of the most terrible places to live in on earth.

“In terms of statistic’s being said, yes, in an absolute sense, the fact of borrowing $4 billion is not necessarily something that will kill Nigeria, even though if you look at how much of our revenues go into servicing debt, you have to worry.

“However, there is a converse point here. This country needs to grow like crazy, and it cannot grow unless you invest. The real issue is the targeting of borrowed funds.

“Am I convinced that the targeting is enough to drive the kind of growth that will facilitate the economy to grow in a sustainable manner? I have not been given enough information to believe that it is the case.”

Mr. Utomi further noted that one of the reasons Nigeria is where it is today, “is that oil price dropped during the heat of last year, compounded by supply chain challenges brought about by the lockdown, which led to revenue shortfall of a significant nature because we have failed to do something we said we are doing, which is to diversify the base of the Nigerian economy.

“Do I see the plans that these borrowings will facilitate the diversification of the economy? My straight answer is No, I do not see the plan.

“We need to develop a clear nation strategy, which looks at how growth can take place in a sustainable manner in this economy, then we can borrow, twice or three times as much as we are borrowing, and I won’t be afraid,”

Kingsley Moghalu, a former Deputy Governor of Nigeria’s Central Bank, in a reaction to Mr. Buhari’s latest request for sovereign and private lenders’ loan, warned that, “the rate at which Nigeria’s public debt has increased in the last six years is unprecedented, alarming, and unsustainable. From $10.31 billion at the end of June 2015, the total external debt increased to $32.85 billion at the end of March 2021, which represents a 218 per cent increase.

“The total outstanding public debt stock increased by 173 per cent in the same period, from N12.11 trillion to N33.10 trillion. On the average, over N3.6 trillion is being added to the public debt annually,” the former U.N official said.

“This massive borrowing”, he added, “and the infrastructure investment that has been used to justify it, have grossly under-performed. Instead of delivering economic growth, the economy has been in recession twice, and when out of it, growth has been underwhelming at 2 per cent at best.

“And rather than the debt-funded infrastructure projects creating an ample number of jobs for the citizens, the national unemployment rate has increased to 33.1 percent while youth unemployment has reached 42.5 per cent”.

In March this year, the federal government took a 1.5 billion USD loan from the Africa Import-Export Bank to fund the rehabilitation of the Port Harcourt refinery, a move many lampooned as a waste of time and resources since borrowing money at a time of dire economic constraints like this to fix the refineries would only dig the nation deeper into the debt trap.

For former Vice President, Atiku Abubakar, it is “an unwise use of scarce funds.”

What have we done with the loans borrowed so far?

In December 2019, the International Monetary Fund warned that frontier economies such as Nigeria had pushed global debt to $188 trillion. According to the IMF, the average debt ratio declined in advanced economies but with no significant reduction in debt. “In emerging market economies and low-income developing countries, the average debt ratios rose further. Notably, China’s total debt ratio reached 258 per cent of GDP at end-2018 the same as the United States and nearing the average for advanced economies, which was 265 per cent”.

Muhammad Enagi, Vice Chairman of the Senate Committee on Foreign and Local Debts, in March 2020, aptly noted that, “the big question in the minds of average Nigerians aware of this fact is, what did we do with the money? In other words, where did the money go? What do we have to show as a people for these huge debts?”

He explained that borrowing has always served as veritable financial platforms for many countries of the world in running their economies but judiciously utilising such loans for intended projects and servicing the debts appropriately have also been problems for developing countries like Nigeria.

According to him, realities on the ground in the country in terms of required infrastructures and debts accumulations between 2006 and now appear unappealing. The very reason, he explained, that many Nigerians are worried whenever they hear that their government is seeking one loan or the other.

The Nigerian government says it is building roads and rails with the loans. The APC last year claimed that over 900 roads across the country were being built or rehabilitated by the government.

Transport Minister, Rotimi Amaechi in May this year admitted that rail lines are not viable means to pay back loans taken from China and other foreign countries for their construction.

“You are looking at economic viability, I am not aware of anywhere in the world…Please help furnish me with the information where rail lines have been used to pay back such loans.

“Nowhere in the world. If you leave the rail as it is, it is not economically viable in terms of cash. What makes its economic viability is the fact that it provides services for those who are involved in other economic activities,” Mr Amaechi said.

Who pays back the debts?

Ike Brannon, a Senior Fellow with the Jack Kemp Foundation, in a 2019 analysis for Forbes, posited that “Nigeria’s biggest economic problem, though and the issue that requires real political acceptance from Buhari’s government is the country’s growing public debt.

“Since assuming office in 2015 President Buhari’s government has added considerably to the nation’s debt, which now exceeds $85 billion. In essence, the nation’s debt is about where it was in 2005-06, just before Nigeria benefited from massive debt relief as part of a program coordinated by the Paris Club, IMF, World Bank and the African Development Bank. To have squandered the debt reduction in just 14 years and have no tangible economic progress to show for it is beyond disappointing.”

“Nigeria will not owe anybody in the Paris Club one kobo,” former President Olusegun Obasanjo had said in a statement after Nigeria paid a final instalment of $4.5 billion to the Paris Club of creditors in a deal that allowed the country to pay off about $30 billion in accumulated debt for about $12 billion, an overall discount of about 60 per cent. The country committed to using foreign reserves, salted away as oil prices soared, to cancel its debt, which had been racked up during decades of military rule.

Sadly, it is clear now that future governments and generations of Nigerians will have to work hard to pay off debts largely accumulated under one man