Apprehension as FG woos investors for N2.472trn loans

AS a Federal Government delegation led by Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed prepares for an international roadshow for $3 billion eurobonds, experts have expressed the need to tread softly. 

At as end of March this year, Federal Government owed N26.91 trillion of the total N33 trillion conventional public debts. 

The amount was beside the N15.51 trillion long due overdrafts that it took from the Central Bank of Nigeria (CBN) and which it has expressed plans to turn into a long term instrument. With the existing N26.91 trillion conventional foreign and domestic loans, debt servicing in the first five months of the year gulped 97 percent of its overall revenues. 

In 2020, government took $3.5 billion non-concessionary facility from the International Monetary Fund (IMF) which it would be required to fully repay in eight quarterly instalments from the third quarter of 2023. Prominent economic, finance and business experts have however, cautioned on the dangers inherent in FG’s expanding appetite for loans to fund its budgets, canvassing rather for a public, private partnership (PPP) model for financing infrastructure. 

On October 13, a Federal Government (FG) delegation led by Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed will embark on a global roadshow to convince investors to invest in its proposed $3 billion Eurobond needed to part finance its 2021 budget deficit. 

The minister at a press conference last week also said government plans to raise an- other $3 billion through multilateral and bilateral borrowing to fund budget deficit. 

According to her, “We have an approval in the 2021 budget to fund the budget deficit 50 per cent locally and 50 per cent externally. We are planning to do about half of that in eurobonds and the other half through other windows such as multilateral and bilateral sources.” 

On July 7, National Assembly approved external borrowing of about $6.2 billion to finance half of the total loan requirements for the 2021 budget a loan request of N2.343 and another $8.3 billion and €490 million. 

Due to mostly dwindling and sometimes static revenues in the face of increasing responsibilities since 2015, Federal Government has increasingly relied on borrowing as the years pass bye. While borrowing is required to support the economy, sustainability transparency and sustainable repayment plan are crucial. 

As at end of March 2021, total public debts stood at $87.2 billion (N33.107 trillion) while FG’s portion of it amounted to N26.91 trillion. to various creditors. 

Budget Office of the Federation’s (BoF) medium-term expenditure framework and fiscal strategy paper from 2015 showed that the Buhari-led administration incurred N7.63 trillion in domestic debt between June 2015 and December 2020. 

In 2020, FG’s budget deficit was at about four percent of GDP, clearly breaking the Fiscal Responsibility Act, which stipulates a limit of three percent. 

The N26.9 trillion is aside the N15.51 trillion overdrafts it took from Central Bank of Nigeria. N2.8 trillion of this was taken in 2020. 

A senior economist at Nigerian Economic Summit Group (NESG), Wilson Erumebor said “when we include AMCON’s liabilities and CBN’s ways and means, debt (total public debts, which was put at over N33 trillion) could amount to about N48.7 trillion, which is around 32 percent of GDP. “Debt to GDP may seem quite low at 32 percent, we must understand that debt is serviced with revenues, so if debt servicing is increasing and revenue is not performing, then we have a problem.” 

For many years, officials of government have insisted that borrowing is essential to fund needed infrastructure, which would then help in creating jobs. 

They also argue that the projects would eventually pay off such loans. At a briefing at the State House earlier this year, Ahmed said “it will be useful to look at the budget for each year; look at the expenditure. If you take out new borrowing, what will the size of the budget be? There will be a lot of capital projects that are affected. We need to look at it that borrowing is used to support infrastruc- ture development. Otherwise, there will be challenge.” 

Also, President of the Senate, Dr. Ahmad Lawan insisted that Nigeria must continue to borrow to fund critical projects. 

He said “you can’t, in my view and judgement tax Nigerians further for you to raise money for infrastructure development. Other countries do that but we have serious situation across the country. Our options are very limited as a country: first we don’t have the necessary revenue; Nigeria is poor; we shouldn’t deceive ourselves. Our resources are so low, our revenues are so low and the option of not doing anything and just sit is not an option worthy of consideration. You cannot keep the economy stagnant. The other option is probably private partnership. What I want to assure Nigerians is that we are not going to be frivolously supporting or approving loans for the executive arm of government.” 

However, an analysis of 2020 and half year 2021 budget per- formance revealed that government has been borrowing to finance almost its entire budget including salaries, overheads and debt service. 

In its 2020 Budget Implementation Analysis, BudgIT, a civictech non-profit organisation reported that the government spent N3.34 trillion on debt servicing out of the N3.42 trillion revenues it generated in 2020 while its total expenditure stood at N10.01 trillion. 

“This means nearly all FG’s salaries, overhead & CAPEX (Capital Expenditure) were financed with loans & CBN support,” the civic group said. It noted that N4.65 trillion was spent on non-debt recurrent expenditure. 

“In 2020, FG projected a total revenue of N5.37 trillion; however, the actual total revenue eventually stood at N3.42 trillion. This represents a 63.71 per cent revenue performance. The cost of servicing FG’s debt is drowning Nigeria as the cost continues to grow, gulping a total of N3.34 trillion (97 per cent) from the total revenue.” 

The trend worsened in 2021 when, within the first five months of the year, FG spent N1.8 trillion on debt servicing, out of N1.84 trillion total revenue thus putting its debt-to-revenue ratio, at 97.8 per cent for the period under review. In a 2021 budget presentation, Finance minister disclosed that of the total N4.86 trillion expended within the period, N1.80 trillion was for debt service (37 per cent of FGN expenditures), N1.50 trillion for personnel cost, including Pensions (31 per cent of FGN revenues) and N973.13 billion was released for capital expenditure. 

However, experts have continued to warn of the dangers inherent in continuous pile up of debts. 

A former Deputy Governor of CBN, Dr Kingsley Moghalu urged officials to consider Public Private Partnership (PPP) option for infrastructure development to reduce borrowing. 

“This massive borrowing, and the infrastructure investment that has been used to justify it, have grossly under-performed. Public-private partnerships should be the dominant approach to infrastructure development in a country like Nigeria, instead of contract awards that, from information available from comparable projects in countries such as Ghana and Ethiopia, are at best overvalued and, at worst, grossly inflated in their costs. 

He warned “we have to stop further borrowing and start to manage the current obligations in order to avoid a sovereign debt default or, at best, a costly restructuring. Further borrowing will lead to a disastrous debt bubble bust. As alternatives to debt, the government needs to focus on increasing domestic revenue, by expanding the tax base – not by increasing tax rates as has been done with the value added tax (VAT) – and by introducing reforms for ease of paying taxes while abolishing multiple taxation.” 

In the view of political economist, Professor Pat Utomi, “the direct implication is that any additional money that the government spends is from additional borrowing; so what it means is that the borrowing will increase. And because I do not see any serious programme to trim or moderate expenditure, it means we are going to be borrowing to the quantum of our budget projections. 

“We are in serious trouble in the country because our debt is not sustainable at the moment. This has been said time and time again; we shouldn’t be borrowing for consumption unless we see expanded taxes. FG needs to change the formulation for how we borrow. We should only borrow to develop value creating assets and those value creating assets should be managed the most efficiently by private sector hands, you can then tax the gains coming from those investments. That is really how you can pay off those debts, but when we are not focusing on production but are still looking to favour revenues, we plunge ourselves into huge problems of servicing the debt.” 

For professor of finance at Nassarawa State University, Uche Uwaleke, “borrowing for infrastructure is not a bad idea. No doubt, there’s been a noticeable improvement in transport infrastructure, especially railways. The challenge is that government revenues have not measured up and so the burden of debt servicing has continued to mount crowding out development funds in the process. Faced with this challenging situation, the government is advised to engage the Private sector more in the provision of physical infrastructure while deploying scarce resources effectively to human capital development.” 

Also contributing to the debate, Former Director-General, Lagos Chamber of Commerce and Industry (LCCI) canvassed for “a comprehensive review of the debt management framework. This would require a close scrutiny of government expenditure and revenue optimisation options. Of course, there is merit in borrowing to fund infrastructure, but it is also a problem if our actual revenue can hardly cover our recurrent expenditure. The situation calls for major expenditure reforms especially around the cost of governance. Policy and regulatory reforms are also imperative to boost investors’ confidence, accelerate growth and impact positively on revenue and job creation.”

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