Securitizing Nigeria’s future with unrealistic budgets: Need for restructuring

By: Akin Fapohunda

BUDGETS are financial templates specifying what the government hopes to rake in as revenue as well as what the government intends to do with the money accruing to it with a view to enhancing the quality of lives of the people within that given space. For a realistic budget cycle to be attained, such estimates must be crafted in a manner that a workable template for revenue generation would be made while at the same time, life enhancing projects are envisaged for provision to the people. The key component of the budget is revenue generation since without proper mobilization of revenue, there can’t be project to fund or to service recurrent expenditure hence, money should adequately flow to the government in other to enable it discharge its financial obligations. Unfortunately, over the years, the series of budget estimates have not met the expectation of meeting the needs of the Nigerian considering the fact that the priority of the Nigerian State is recurrent expenditure over capital spending but the current reality in the country has become so dire and disheartening.

In the last few years, the country has not been able to sufficiently mobilize resources from its exports of commodities, principally from oil, which is the mainstay of the country. While the country has not been able to meet up with the quota allotted to him by the Organisation of Petroleum Export Countries (OPEC) of 2.2 million barrels per day, we have also been grappling with crude oil theft on a large scale. The oil theft scourge has not been addressed by successive governments in recent times prompting the resort to some measures that have become so inimical to the future of the country both in the short and long term. To address the revenue shortcomings, Nigeria has had to adopt a fiscal strategy that is all that utilises securitising future revenues to finance pressing national priorities through loans, which are not tied to specific life enhancing projects that have the potentials to repay themselves.

From oil-backed foreign loans to bond financed pension arrears and off-budget infrastructure deals, this approach has quietly reshaped the country’s debt structure and future budget profile prompting many to harbor the fear that the country might eventually collapse.  Budget securitization refers to the practice of borrowing today and pledging a portion of future government revenues (e.g., crude oil, tolls, taxes, or budget allocations) as collateral or repayment source. While securitization provides upfront liquidity, the strategy reduces future flexibility and exposes the economy to repayment shocks especially when tied to volatile commodities like crude oil. While these instruments deliver liquidity and political wins in the short term, they may harden long-term structural debt burdens and reduce capital expenditure capacity especially in an era of volatile oil prices. Some specifics will suffice to buttress my believe that this approach is not in any way sustainable on the long run and one of such is the decision of the late former President Muhammadu Buhari’s decision to take a N22.7 trillion Ways & Means loans.

The money was securitised into bonds held by Central Bank of Nigeria and institutional investors, without parliamentary scrutiny and the implication of this is that estimated N3-3.5 trillion repayments scheduled from 2023 to 2026.  Debt burden squeezes social and infrastructure spending, raising debt service risk and lowering growth potential. Reduces fiscal flexibility a growing chunk of capital budget automatically goes toward servicing these debts. Incumbent Bola Tinubu has also continued to toe the same line rather addressing the current structural imbalance in both political and economic realms to be able to make the country functional. A signature project of the current government is the Lagos-Calabar Highway, which many see as unduly needless considering the quantum of funds that it would eventually gulp. The N18 Trillion cost of the project could have been utilized to rehabilitate road infrastructure across the country and considering financial fatigue the government is suffering now, it has however secured a loan of N1.06 Trillion from the Deutsche Bank syndicate with repayment spanning between 8 and 10 years, with the estimated impact to the country in-between N130–N150 billion.

Risks involved however include, no direct revenue from the government to service loan as future budgets are pre-committed without public scrutiny. Federal Government also borrowed a loan amounting to N 757 billion from pension arrears fund through the Debt Management Office (DMO) with the repayment period being 20 years. The collateral being with the estimated 2025 impact hovering between N75-90billion repayment and the risks is that it would sets a bad precedent of converting liabilities to long-term debt just as it would also crowd out capital expenditure. In all this, the government at the centre has habitually bypassed legislative oversight and has event elected to be less transparent, so pervasive is this situation that the Speaker of the House of Representatives, Hon. Tajudeen Abass described it as reckless.

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Though he has since denied making such comments but the reality on ground is such that the country would not go anywhere near progress and development should this flawed political and economic structure continues.

•Dr. Fapohunda , Secretary General, ATUNTO Foundation, can be reached via [email protected]