Contending issues over Senate’s move to approve $30bn loan request rejected by 8th Senate

Nigerian Senate President, Ahmad Lawan, has signalled the readiness of the ninth Senate to approve the $29.96 billion loan request by President Muhammadu Buhari three years after it was rejected by the eight Senate led by Bukola Saraki.

The loan facility is projected to be spent on key infrastructure projects across the country.

This is coming at a time the country’s debt profile has skyrocketed from $10bn since the president took over in 2015 to $84bn.

On October 25, 2016, the president forwarded a request to the eighth Senate to approve external borrowing plan of $29.960 billion to execute key infrastructural projects across the country between 2016 and 2018.

Buhari explained that targeted projects cut across all sectors with special emphasis on infrastructure, agriculture, health, education, water supply, growth and employment generation.

Other sectors, he said, included poverty reduction through social safety net programmes and governance and financial management reforms.

The request is made up of proposed projects and programmes loan of $11.274 billion, special national infrastructure projects $10.686 billion, Euro bonds of $4.5 billion and Federal Government budget support of $3.5 billion.

According to the president, the inability of the county’s annual budgetary provisions to bridge the huge infrastructural deficits and the enormous financial resources needed to fill the void made resort to external borrowing inevitable in order to bridge the financing gap.

However, the eight Senate rejected the president’s request in its entirety as the majority of the Senators voted against it when it was tabled for consideration. The opposition Peoples Democratic Party (PDP) and prominent Nigerians also urged the lawmakers to reject Buhari’s request, saying it would mortgage future generations of Nigerians.

Why was it rejected? 

In 2016, a Senior Advocate of Nigeria (SAN), Femi Falana, had cautioned the president not to mortgage the future of the country by seeking a $29.9bn loan.

While speaking at a symposium tagged: “X-raying 50 years of military intervention in Nigeria’s politics”, organised by the Department of Political Science, University of Lagos that year, Falana counselled the Buhari to rather engage in an aggressive recovery of looted funds stashed away in foreign banks than borrowing.

“Now (2016), President Buhari wants to get a loan of $30bn. You know what that means? For generations unborn, we will mortgage their future, except the money is genuinely meant for infrastructural development, which is usually not the case once the money comes in. So Buhari should forget about the $30bn loan when he can get more than that if he goes after our stolen money in the West.”

Aside the strained relationship between the eighth Senate and President Buhari, a former lawmaker in the eight Senate, Senator Shehu Sani revealed that the loan request was rejected to save the country from drowning in the cesspits of debt pool.

Senator Shehu who was the chairman of the Senate committee on local and foreign debt said the county’s external debt in 2015 was $10.32billion and it boomed to $22.08 in the second quarter this year. He maintained that should the last Senate had approved the request, Nigeria’s external debt could have leaned to over $52billion.

“They will always tell you that even America is borrowing and I don’t know how rational is it to keep on borrowing because another country is borrowing. If we keep listening to bankers and contractors we will keep borrowing and burying ourselves and leave behind for our children a legacy of debt burden,” he had said.

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Looking at the amount being used for debt servicing which will further be clarified and the utilisation of previous loans, critics are of the view that the external borrowing plans might end up funding projects that do not exist once the money comes in.

Their argument is that In a country where about half of the revenue is used to service external debt, the increasing domestic debt burden means that the total proportion of the revenue spent on servicing debt will get higher, which financial experts have also attested to, especially looking at the county’s GDP which is considered very low, and when compared with other developing countries like South Africa, the high burden of debt service should be a major concern.

Nigeria’s revenue is at a low level and debt servicing is currently higher than 60 per cent, according to BudgIT. Nigeria’s revenue, when compared to GDP, is also weak. Thus, Nigeria cannot keep building a huge debt profile without frantic efforts on raising revenues to GDP which stands at less than 8 per cent.

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Again, on Thursday, November 28, 2019, the president forwarded the request to the ninth Senate to reconsider and approve the external borrowing plan earlier rejected.

The president in his latest letter explained that while he transmitted the 2016-2018 external borrowing plan to the eighth National Assembly in September 2016, the plan was not approved in its entirety by the legislature, urging the new Senate to approve the remaining projects.

Accordingly, only the Federal Government’s emergency projects for the North East’s four states projects and one China Exim assistant railway modernisation projects for the Lagos-Ibadan segment were approved out of the total of 39 projects

Others yet to be approved are said to be critical to the delivery of the government’s policies and programmes relating to power, mining, roads, agriculture, health, water and educational sectors.

Though the Senate President, a senator in the last Senate, said the loan request was rejected earlier in the eighth Senate due in part to its lack of necessary details which have now been provided. There is a likelihood the request will enjoy a speedy passage by the Senate which is dominated by loyal kinsmen of the president’s party, APC

As expected, should the loan request be approved, these projects could be used to serve the usual conduit pipe by corrupt elements in government once the money comes in. And if the loan is gotten, it means the country’s external debt which currently stands at $27.16 billion (of which $4.27 billion is for the states and FCT) and domestic debt of $56.72 billion for the states and the FCT will rise to over $97 billion.

More borrowing: Huge debt service, less to show

According to BudgIT, Nigeria will use nearly a quarter of its 2020 budget to repay both internal and external debts. This is because of the total N10.594 trillion budget for the 2020 fiscal year, the government will spend N2.5 trillion to service debts.

With a shadowed GDP growth of 2.9 per cent, N8.2 trillion is estimated as the total Federal Government revenue in 2020. This comprises N2.6 trillion as oil revenue, N1.8 trillion from non-tax revenue and other revenues of N3.7 trillion. This implies that the country will run a budget deficit of N2.44 trillion for the fiscal year.

In all, Buhari’s government had so far spent about N7.9 trillion to service both domestic and foreign debts it incurred in five years (2015 to 2019).

The N7.9trn which was captured in the country’s annual budgets in the last five years showed that in 2015, the Federal Government spent N943 billion for debt servicing. Then, it spent N1.36trn in 2016 and N1.66trn in 2017. The analysis also revealed that in 2018, it spent N2.23trn on debt servicing, while in 2019 it had so far spent N2.14trn. For 2020, the government says it’ll spend N2.5trn.

According to the African Development Bank (AfDB), debt servicing gulps more than 50 per cent of Nigeria’s revenue. The average revenue spent by West African countries on external debt servicing is 17 per cent. This is high and even higher in Nigeria which spends about 50 per cent revenue on external debt servicing

“In Nigeria, about half of the revenue is used to service external debt. The increasing domestic debt burden means that the total proportion of the revenue spent on servicing debt is even higher. In a country where only six per cent of GDP is collected in revenue, the high burden of debt service is a major concern,” the bank said.

Despite the growing debt profile in five years, critics argue that what follows are non-existent projects across the country. They added that if the country wants to fill the infrastructural deficit, more have to be done to aggressively follow the money through the conduit pipe.