The federal government’s new plan to borrow another round of funds from the international community has raised new concerns among economic analysts who say the country’s high level of indebtedness has not been reflected in the quality of life of people. Nigerians.
President Muhammadu Buhari wrote to the National Assembly on Wednesday asking for approval of more than $ 4.179 billion and £ 710 million in foreign loans, amounting to N 2.5 trillion from the international community.
The new loan application, once approved, would raise the country’s debt profile to 35 trillion naira.
However, analysts have decried the continued borrowing of the federal government over the years, which they say has not been reflected in the development of the country’s economy, as evidenced by the high rate of poverty, hunger and poverty. deprivation in the country.
Nigeria has maintained the infamous position of the poverty capital of the world.
Data from the Nigerian National Bureau of Statistics (NBS) indicated that 40 percent or 83 million Nigerians were living in poverty in 2020. Although Nigeria’s poverty profile for 2021 has not yet been released, it is estimated that the number of poor people will increase to 90 million, or 45% of the population in 2022.
Also using the World Bank’s monetary poverty line of $ 3.20 per day, Nigeria’s poverty rate is estimated at 71%.
In addition to these, the World Food Program and the Food and Agriculture Organization in July ranked Nigeria as one of the world’s newest hunger hotspots, confirming the palpable level of poverty and hunger in the country.
Commenting on the federal government’s plan for new borrowing despite the country’s current debt profile, a senior economist and associate at SPM Professionals, said that while Nigeria’s debt profile has increased by an average of 20% over the years past five years, the country’s growth rate had not reflected the level of indebtedness, remaining below 2% in the past five years.
“If you look at what’s happening on the impact of debt, as we speak, Nigeria has borrowed an average of 20% over the past five years, but in terms of the growth rate, the rate of average growth over the past five years is less than 2%.
“We can all do the math. Does the loan add to us as a country as we continue to borrow more and more money? Unfortunately, the impact of loans continues to diminish as poverty, hunger and deprivation become the order of the day in our country, ”Alaje told LEADERSHIP on Sunday.
Alaje also highlighted Nigeria’s involvement in debt service in the face of declining income.
Recall that the President of the Economic Advisory Council (EAC), Dr Doyin Salami, previously deplored that with a debt service / revenue ratio of 97.7% (January to May 2021), the profile of the public debt of country was impossible to maintain. He added that the country should look beyond the debt-to-GDP ratio, which according to the Debt Management Bureau (DMO) is considered sustainable.
“What are the costs of this loan besides the interest rate?” Our debt profile position right now is 35.5 trillion naira, which is what the Debt Management Office estimates. This is another set of foreign loans that we are asking for. We already know what the exchange rate says, especially in the parallel market, and I have a lot of concerns about what that will be. Therefore, I will say that the government should start looking at other alternative sources, especially with regard to income, ”he said.
In his reaction, the Managing Director of Credent Investment Managers Ltd, Mr. Ibrahim Shelleng, also said that the current level of indebtedness is of great concern given the current revenues made by the government.
“We are currently spending almost 90 percent of our real income on debt servicing and that’s a concern. While the debt to GDP ratio may show that we are doing better than Ghana and India etc, it needs to be put in context. Our debt is mainly used to finance recurring expenses.
“However, if some of the debt is used to create income-generating projects, then perhaps the projected future cash flows could cover the current debt burden,” Shelleng said.
Amid these fears, the federal government said there was no need to panic, saying the total debt-to-gross domestic product ratio would not exceed 35% by 2024. The government also said the the country’s debt was sustainable.
Debt Management Bureau Director General Patience Oniha, who made the remarks when interacting with our correspondent, said Nigeria’s debt can only become unsustainable if Africa’s largest economy does not. does nothing to improve income generation and continues to focus only on borrowing.
The federal government had set itself a debt ceiling of 40%.
From the projection made by the executive which was submitted to the National Assembly, the federal government estimates that from 31.94% in 2021, the debt / GDP ratio would rise to 32.48% and 32, 96% in 2022 and 2023 respectively, this figure is expected to reach around 35% by 2024.
“Our debt to GDP ratio, when we add the ways and means advances, will certainly be around 35 percent. Look at the CDMT; like I said, we are realistic and transparent with the public. By the time you add this year to 2024 and then you add that the huge advancements of the ways and means there, it will reach that level, ”said the DMO GM.
Besides the Central Bank of Nigeria overdraft known as Ways and Means which started with N10 trillion, there are other plans for borrowing as part of the federal government’s medium-term spending for the next three years which should help increase the debt ratio.
Oniha said the government is working to recognize the large government overdraft, restructure the overdraft (convert it to permanent debt), and then process the approval through the Federal Executive Council and the National Assembly. to be able to include them in the outstanding public debt.
Fearing that the debt would soon become unsustainable, Oniha said this was unfounded, as it can only happen if Nigeria borrows only without generating income.
“I hate to talk about when the debt gets unbearable. I think the reality is that will happen if only we don’t do anything about the income; if we just continue to focus on borrowing. And we also showed you some pictures from other countries. They borrow but they also have income. Their eyes are very clear on income including African countries so what is wrong with us, what is wrong with doing the same? This is where I think the fear should come from. So we should focus on income.
“There are a number of initiatives that the Minister of Finance, Budget and National Planning is leading, the strategic revenue growth initiative and all that discipline to ensure that SOEs hand over their surpluses to the government. There is a lot to do there. The initiative is championed by the DG Budget office and the OAGF, ”said the DG.
Oniha said Nigeria has a lot of concessional debt in its external debt stock. Of the country’s total public debt of N35,465 billion, N13,711 billion is owed to foreign borrowers, including China, the World Bank and the IMF. The federal government has a maximum share of debt at 83.07 percent, while the states and CTF owe 16.93 percent.
President Buhari sent a letter to lawmakers approving new borrowing under the medium-term external borrowing plan.
DG DMO said there is a need to properly manage the currency risks associated with the external loan portfolio.
The advance of ways and means is the government’s current account managed by the office of the general accountant of the federation.