• Wednesday, February 21, 2024
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Nigeria’s debt burden re-echoes danger of ‘rubber stamp’ lawmakers

Nigeria’s debt burden re-echoes danger of ‘rubber stamp’ lawmakers

Nigeria’s 1999 constitution gave lawmakers the power of the purse to moderate the excesses of the executive by putting stipulations on the use of funds. As the economy tilts dangerously close to the cliff’s edge, BusinessDay’s analysis and expert opinions show that by abdicating their responsibility, lawmakers are partly culpable.

As lawmakers in the 10th Assembly jostle for leadership positions in the National Assembly, with many promoting candidates they think Bola Tinubu, the president-elect, would approve of, Nigeria runs the risk of heading to even more economic turmoil with another “rubber stamp’ legislature.

Ahmed Lawan, Senate President, said on Tuesday that the 9th Senate was mindful of the damaging effect of persistent conflict with the executive and its impact on legislative activities and hence settled for a robust relationship, which many concluded made it a rubber stamp.

In the United States, the Republican-led Congress is piling pressure on the White House, demanding responsible spending. Nigeria’s 9th Assembly has a history of jettisoning the rubber stamp toga only when it concerns padding the budget and inflating their members’ allowances and constituency allocations.

But the country’s worsening poverty amidst profligate spending funded by debts, even as crude oil, the nation’s major revenue earner, declines, shows the folly of abdicating their responsibility to Nigerians.

Since 2015, the budget deficit has averaged N4 trillion every year. In 2022, Nigeria’s debt service-to-revenue ratio stood at 80.6 percent, when the experts, including at the World Bank, recommend 22.5 percent for low-income countries like Nigeria.

The International Monetary Fund (IMF) is also predicting the federal government to spend 82 percent of its revenue on interest payments in 2023, the most of any country, of which the projections hold true, analysts say.

“I think the biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue, and as you see us in terms of the baseline from the federal government of Nigeria, the revenue, almost 100 percent, is projected by 2026 to be taken by debt service,” said Ari Aisen, the IMF’s resident representative for Nigeria, last year.

This is the legacy of the 9th National Assembly, which has the most servile set of lawmakers in Nigeria’s democracy. Their worshipful reverence for Muhammadu Buhari, a man with a tenuous grasp on economic thinking, prevented critical scrutiny of budget deficits and demanded fiscal responsibility.

The clearest proof of this is seen in the fact that Nigeria’s total debt stock rose by N13.10 trillion between 2015 and 2019 under the leadership of the 8th Assembly, while debts rose by a dramatic 175.5 percent between 2019 and the first quarter of 2023.

Throughout this period, the Debt Management Office sold the fantasy that using the debt-to-GDP ratio, when compared with other countries, Nigeria’s debt was sustainable.

In 2019, Nigeria spent N54 of every N100 it earned, more than half, servicing debt. The country closest to Nigeria, Lebanon, was spending 50.8 percent of its revenues. Nigeria, being ahead of Lebanon, is in itself a big indictment on lawmakers, who are expected to serve as a watchdog to the executive.

Lebanon is grappling with a deep economic crisis after successive governments piled up debt following the 1975-1990 civil war with little to show for their spending binge.

As representatives of the people, lawmakers had an obligation to question the government’s revenue performance and demand that GDP grow along with debts because the debt-to-GDP ratio assumes a country is able to get revenues out of that GDP. They ought to question if the federal government now exists to pay debts. Not to invest in education, healthcare or infrastructure, as is expected of a developing economy with promising human capital and a huge infrastructure deficit.

“If your ability to generate revenue from your GDP is weak, then it’s a pretty useless indicator to track to determine your ability to repay debt,” said Yemi Kale, former statistician general of Nigeria.

“Imagine if we increased our revenue to GDP by just 10 percent. Getting just 10 percent of our N200 trillion GDP is about N20 trillion. Try 15 percent, and that’s N35 trillion in revenues. Suddenly, our debt doesn’t look so troubling. So the revenue to pay does exist, but we are pretty poor at getting it out.”

Economies contract when spending is heavily curtailed; this is why the debt-to-GDP ratio leverages potential income to push for economic expansion.

The trouble with Nigeria’s borrowing is that “we haven’t been able to match our expenditure energy with our revenue growth energy, so we have debt,” said Kale.

The current debacle over ways and means lending further validates the notion that a servile set of lawmakers harms the economy.

As the banker of the Federal Government, the Central Bank of Nigeria can lend to the federal government through Ways and Means Advances, a loan facility used to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.

But there are legal guardrails.

Section 38 of the CBN Act states: “Notwithstanding the provisions of Section 34(d) of this Act, the Bank (CBN) may grant temporary advances to the Federal Government in respect of a temporary deficiency of budget revenue at such rate as the Bank may determine. The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.

Read also: N22.7trn CBN loan restructuring seen easing debt pressure on Tinubu

“All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted, and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”

This loan is supposed to be in an amount not exceeding 5 percent of the previous year’s aggregate revenue, and no further lending should be made under this heading until the outstanding debts have been retired. But this debt has surged more than 30 times since Buhari came into office in 2015, as it was N789.67 billion when President Goodluck Jonathan left office.

“It is important to observe here and now that this is a legitimate source of funding for the government. The only problem on this occasion is that the law that stipulates how the loan should be extended for control purposes to mitigate its inflationary impacts has been kept in the breach,” said Boniface Chizea, an economic and business development consultant in an opinion published by BusinessDay.

In December 2022, President Muhammadu Buhari wrote the Senate requesting approval to restructure N23.7 trillion in Ways and Means Advances.

“The ways and means, balances as of December 19, 2022, are N22.7 trillion. I have approved the securitisation of the ways and means balances on the following terms Amount: N23.7 trillion; tenure: 40 years; moratorium on principal repayment: three years; pricing interest rate: 9 percent. Your concurrence and approval are sought to allow for the implementation of the same,” Buhari said in the letter.

Lawmakers requested further details, and on May 3, they approved the request.

Some analysts have said that restructuring the debt would reduce the debt pressure awaiting the incoming administration, but it could also encourage further abuse. This could continue the erosion of the naira, which has seen it collapse against the greenback.