Nigeria and the burden of N33trn debt

THE unending national debate over the ever-rising public debt came again to the fore last week when the Debt Management Office (DMO) released details of Nigeria’s public debt stock as of March 31, 2021.

Total public debt stock which comprises the debt stock of the Federal Government, 36 state governments and the Federal Capital Territory (FCT) stood at N33.107 trillion or $87.239 billion. It also includes N940.220 billion promissory notes issued to settle inherited arrears of the FGN to state governments, oil marketing companies, exporters and local contractors. In the statement, DMO noted that when compared to the total public debt stock of N32.916 trillion as of December 31, 2020, the increase in the debt stock was marginal at 0.58 per cent.

Further analysis of the public debt stock according to the agency shows that the marginal increase came through domestic debt stock, which grew by 2.11 per cent from N20.21 trillion in December 2020 to N20.637 trillion as at March 31. Federal Government’s share of the domestic debt includes FGN Bonds, Sukuk and Green Bonds used to finance infrastructure and other capital projects as well as the N940.220 billion promissory notes. External debt stock on the other hand declined from $33.348 billion as at December 31, 2020 to $32.86 billion due to the redemption of the $500 million Eurobond in January 2021. 

Although there was no fresh borrowing during the first and the ongoing second quarter of 2021, more borrowing is expected from the third quarter to fund inherent deficit in the 2021 budget and also fund some infrastructure projects like Kano-Kaduna and Kano-Maradi railway. The 2021 federal budget is a total N13.8 trillion with a deficit of N5.6 trillion and a borrowing plan of N4.6 trillion. 

The 2021 Federal Government budget of N13.8 trillion has a deficit of N5.6 trillion. The deficit constitutes almost 70 per cent of expected revenues. The argument is that this fiscal deficit has created the need to borrow to plug shortfall thus significantly increasing the debt stock and expanding the cost of debt servicing. Federal Government’s total debt stock rose from around N10.9 trillion in 2015 to about N30 trillion by the end of March 2021 and the plan to borrow almost N4.69 trillion, excluding multilateral and bilateral project tied loans to finance the deficit will potentially expand Federal Government’s total outstanding loans to over N32 trillion, while total public debt will jump to almost N38 trillion. Eleven per cent of the $34.680 billion existing external loans came from China and the only portion tied to specific projects. 

Even then, some of those specific projects like the $19.2 million National Public Security Communications Project; the $25.03 million Abuja Light Rail project are moribund even as the country continues to service the loans and principal payment will be made when due. The National Public Security Communications Project, which was to provide security cameras on the streets of Abuja, was never completed as it was abandoned halfway. Major components of the facilities such as batteries and solar panels have already been stolen. Abuja Light Rail on the other hand, was divided into several segments. The first segment, which stretched from the Airport to Central Area behind NNPC Mega Station along Olusegun Obasanjo Way was completed and commissioned few years ago. It operated for about a year and was shut down for lack of patronage. To be sure also, government in recent years has begun to tie Sukuk bonds to specific projects.

From 2017, Federal Government when Sukuk bond proceed of N162 billion was released to contractors handling 44 road projects across six geo political zones, has been strict in ensuring that Sukuk bond issuances are expended on verifiable road projects. In January 2019, Minister of Finance, Mrs Zainab Ahmed, handed over the N100 billion generated from the Sukuk issued in December 2018 to Minister of Works and Housing, Babatunde Fasola to finance specific road projects. Likewise, in July 2020, Ahmed released proceeds from Sukkuk Bond to Minister of Works and Housing, Mr. Babatunde Fashola for road construction. Nonetheless, loans from China Exim Bank and Sukuk proceeds are the little fraction of the total loans that could be accounted for as spent on verifiable capital projects. A peep into the 2021 budget revealed certain budget heads categorised as capital projects was a dubious attempt to make it appear that capital portion of the budget is bigger than it actually is. Some of the items have been shown to either been frivolous or reckless for a country that is running a budget with about 40 per cent deficit.

BudgIT, a non-governmental organisation picked some inconsistencies and unconscionable appropriation. Such frivolity includes spending over N9 billion on renovation of National Assembly Complex; N3.1 billion just to fence National Defence College; N42.7 million to procure electricity metres for military barracks at a time that CBN was financing free distribution of metres; N103 million to appraise the design of War College permanent site; N30 million for Ministry of Water Resources to procure legal equipment, when the Federal Ministry of Justice provided legal services to every ministry, department and agency. Some other recurrent expenditure was hidden under capital in order to make the percentage of capital appear larger than it really was.

Meanwhile, in the 2020 financial year, Federal Government expended $1.003 billion or N2.95 trillion on debt service according to fourth quarter 2020 Budget Implementation Report of Budget Office of the Federation. Debt service obligations of Federal Government rose from N953 billion in 2015 to N2.95 trillion in 2020, a year when total revenue inflow was a mere N3.418 trillion. Despite the fear by many Nigerians concerning mounting debts, DMO has continued to insist that there is nothing to worry about as debt remained within sustainable limits. At a training workshop in Abuja some weeks ago, Director General of DMO who spoke through one of her officials said debt levels was yet to reach the threshold set by the International Monetary Fund ((IMF) and the World Bank.

She continued that Economic Community of West African States (ECOWAS) has also set maximum debt limit of 70 per cent of GDP for domestic debt while Nigeria is still currently at 21 per cent. For external debt, DMO has set 40 per cent benchmark, but the country is still at eight per cent. As government officials harp on debt to GDP ratio, independent economists and financial analysts say government should rather think about debt to revenue ration which is currently alarming. On Friday last week, Senate President Ahmad Lawan also admitted that Nigeria is currently under a heavy burden of debt but added that with the revenue and infrastructure situation, government had little choice than to borrow more. Ultimately however, other option of financing infrastructure if for government to concession the projects and allow private investors to build, operate and transfer.


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