The Debt Management Office (DMO) has said that moves by President Muhammadu Buhari for a $22.72bn (N6.9 trillion) external loan is in line with objectives for Nigeria to tap into cheap long-term debt in the international market for fixing infrastructure gaps and moderating the country’s level of debt servicing.
DMO’s defence comes amid public concerns about Nigeria’s rising debt burden.
The debt office, alongside the finance minister and the minister of works, on Tuesday defended the borrowings before the House of Representatives Committee on Aids, Loans and Debt Management. President Buhari had failed to secure the approval of the 8th Assembly for the same loan in his first term.
“The proposed new borrowing is consistent with the subsisting Debt Management Strategy which seeks to replace short-term high-interest cost domestic debt with low-interest long-term external debt and is one of the measures that is being implemented to moderate the level of debt service,” the DMO said in a press release.
Domestic debt costs Nigeria as high as 16 percent to service annually. Last year the government paid N1.8 trillion to service its local debt compared to $1.47bn or around half a trillion naira for external debts.
According to the debt office, the objective to restructure Nigeria’s debt mix has seen a declining share of domestic debt in the total public debt from over 83 percent in December 2015 to about 68 percent in June 2019. DMO wants domestic debt to be 60 percent of its total borrowings.
The $22.72bn loan Buhari seeks lawmakers’ approval for would be sourced from multilateral and bilateral lenders like the World Bank, Africa Development Bank, China Exim Bank, among others.
The loans are concessional, semi-concessional, and long-tenored which would be used for financing infrastructure and other developmental social projects, the government said.
BusinessDay reported the loan is the final tranche of a $29bn infrastructure plan first tabled by Buhari in 2016, and would cost Nigeria over half a billion dollars annually to service for an average of 21 years.
The DMO said Nigeria has a low debt to GDP ratio which is below the maximum 25 percent limit, by the Fiscal Responsibility Act.
Debt to GDP by end of June 2019 stood at 18.99 percent down from 19.09 percent at the start of the year, which means Nigeria’s ratio is relatively low compared to countries like United States, China and Canada, the debt office said.
It, however, admitted that Nigeria’s debt service to revenue ratio has been higher than desirable due to low revenue to the government and providing strong justification for the government’s push for more oil and non-oil revenue.
Lately, the government has taken steps to increase its revenue through a new Finance Bill and Strategic Revenue Growth Initiative that will increase its intake from VAT, among other things, and has also amended the PSC Act (Deep Offshore and Inland Basin Production Sharing) to increase its income.
Nigeria’s debt service to revenue last year was at 51 percent, 6 percent points lower than in 2017 owing to the increase in the debt stock and relatively high domestic interest rates, DMO said.
It also said Buhari should not be blamed for the public debt stock, at N25.7trn as at the last count in June, because the debt stock is a cumulative figure of borrowings by successive governments over many years.
BusinessDay reported Monday that the country’s debt stock has almost tripled in the last four years with little to be shown for the borrowings, which has caused many concerns over the move to add $22.7bn to the stock.
Bababtude Fashola, minister for works, however, said the country cannot ignore the concerns and demand for the provision of life-sustaining infrastructure would have a positive multiplier effect on the economy.
Asides infrastructure, other loans such as those for the educational sector will contribute to the development of Nigeria’s human capital, while loans for agriculture will be used to diversify the economy.
There will also be funding for Development Finance Institutions to enhance access to finance for micro, small and medium scale enterprises, DMO said.