Foreign debt and accountability in Nigeria
In an editorial in July 2018, the BusinessDay editorial board, of which I was part of, warned about an impending debt peonage if the large scale of borrowings, at high interest rates, were not curbed by the government. By the time of writing the editorial, Nigeria’s total debt stood at N22.38 trillion ($73.2 billion) representing 19 percent of GDP. This comprised external debt of about N6.75 trillion (or $22.08 billion) and domestic debt of about N15.629 (or $51.12 billion). This was almost a doubling of the debt in Naira terms from N12.1 trillion in June 2015 (when Buhari effectively took over). Beyond the debt, what was most worrying to us at the time was the issue of debt servicing. Data from the Office of the Accountant General of the Federation and the Budget Office at the time indicated that debt service to revenue ratio worked out at about 70 percent – a figure quite high and unsustainable by global standards.
But in a poor attempt at defending the borrowings of the government, the Debt Management Office (DMO) wrote a rejoinder to our editorial, denying any debt crises and assuring the reading public that regardless of Nigeria’s high debt to service ratio, Nigeria’s borrowing is sustainable (at 19 percent of GDP) and that the “government has also embarked on several revenue boosting initiatives with a view to increasing the size of the revenue available to finance the budget and reduce the debt service to revenue ratio.” For added measure, when we advised the government to instead seek loans from multilateral agencies with very low interest rates instead of approaching shylock investors and borrowers, the DMO accused us of a poor understanding of the lending policies of multilateral agencies and that Nigeria could not approach these agencies because she has no balance of payment crisis.
Of course, the government kept borrowing and by December 2019, the debt had accumulated to N27.40 trillion with an external debt component of $27.8 billion. A look at the spread of the debt shows that Nigeria does not borrow from global multilateral institutions even though they lend at one percent or less. Rather, we go for commercial loans with interest rates of between 7 to 10 percent and recently from China with equally high interest rates. There are two main reasons for this. First, borrowing from multilateral institutions (IMF and the World Bank) is not a politically popular decision in Nigeria. Nigerians are quite emotive when it comes to IMF loans – especially with the conditionalities that come with them. The debates the Structural Adjustment Programme and IMF proposed loans generated in the 1980s come to mind. Some would argue that the fear of IMF conditionalities have pushed the Nigerian government into the arms of shylock investors who would show no mercy when Nigeria defaults on the loans.
But this argument is neither here nor there. The two main conditionalities for which Nigerians always resent the IMF for were – ending the fuel subsidy and floating the naira. History and our bitter experience have proven the multilateral agency right. Rather than invest in education, health and human development of its citizens, the Nigerian government has found it politically expedient to pour all those monies (scarce forex) into subsidising the consumption of petrol and keeping the value of the naira artificially low to enable elite/middle class consumption. Most Nigerians who were seduced into protesting against their true interest in 2011 have come round to see the foolishness behind the whole fuel subsidy regime that gulps billions of dollars yearly.
The second reason is the question of accountability. If multilateral institutions were to give loans to Nigeria, the government will first have to put together a convincing proposal. More importantly, the institutions will also put in place a strong monitoring process to ensure that funds are used judiciously and for the approved projects. What is more, the release of the funds are likely to be staggered with release of future funds dependent on how earlier ones were spent. But we know that Nigeria does not have a track record of judicious utilisation of budgeted funds not to talk of external loans. The accumulated external loans that Obasanjo and Ngozi-Okonjo Iweala succeeded in getting the Paris club and other investors to write off for Nigeria were never spent for the purposes for which they were obtained. The general consensus was that they were mismanaged or outrightly embezzled.
Sadly, the problem of accountability is still with us. Despite Buhari’s claim to integrity, no one can say exactly what the borrowed funds were spent on in the last five years. There is a high probability some of it were used to just service recurrent expenditure.
Clearly then, IMF-type loans would have been the best choice for Nigeria because the proposals and spending would be closely monitored and supervised to ensure value for money. But the Buhari government and even its predecessors would have none of it. As recent as February this year, the government was planning another round of external borrowing to the tune of $22.7 billion. This was after the previous Senate refused a similar request to borrow $30 billion three years earlier. About $500 million of the loan would have been used to digitalise the Nigerian Television Authority (NTA) – a project many critics have termed ‘useless’.
Well, the petro-dollars that the government has always depended on is no longer forthcoming. The financial situation of the country is now so precarious analysts are predicting that there will not be any significant money to share between the federating units in June because of the combined effects of collapsed oil prices and the lockdown of the country. If by 2018, our revenue to debt service ratio was 70 percent, we can reasonably expect that Nigeria’s current revenue is not sufficient to service its debt and is at the point of default. Of course we know what a default would lead to.