Rising Debts: IMF Warning and Buhari’s Fresh Demand for $30m Loan

By Eric Elezuo

Barely 24 hours after the International Monetary Fund (IMF) issued a warning to Nigeria against rising debts, President Muhammadu Buhari re-sent the $29.96bn 2016-2018 external borrowing plan to the Senate for its consideration and approval, saying that earnings from oil was not enough. The President’s financial plan was approved by the Federal Executive Council in August 2016 and sent to the 8th Assembly in September 2016. But the request was rejected and thrown out by the Dr. Bukola Saraki-led National Assembly in November of the same year.

The Debt Management Office has said out of Nigeria’s total debt profile of N25.7tn as of June 2019, external borrowing accounts for about 32 per cent while the 68 per cent is domestic.

Reading the fresh request on the floor of the Senate during plenary, the Senate President, Ahmed Lawan failed to give details of the executive communication. it is however, on record that Buhari has asked for the loan approval in 2016 to help in funding infrastructure plans from 2016 to 2018.

The letter, dated November 26, 2019, Buhari noted as follows:

“Pursuant to Section 21 and 27 of the Debt Management Office (Establishment) Act, I hereby request for Resolutions of the Senate to approve the Federal Government’s 2016 – 2018 External Borrowing plan, as well as relevant projects under this plan.

“Specifically, the Senate is invited to note that: While I had transmitted the 2016-2018 External Borrowing Plan to the 8th National Assembly in September, 2016, this plan was not approved in its entirety by the Legislature.

“Only the Federal Government’s Emergency projects for the North East, (Four (4) States’ projects and one (1) China Exam Bank Assisted Railway Modernisation Projects for Lagos – Ibadan Segment) were approved, out of a total of thirty-nine (39) projects.

“The Outstanding projects in the plan that were not approved by the Legislature are, nevertheless, critical to the delivery of the Government’s policies and programmes relating to power, mining, roads, agriculture, health, water and educational sectors.

“These outstanding projects are well advanced in terms of their preparation, consistent with the 2016 Debt Sustainability Analysis undertaken by the Debt Management Office and were approved by the Federal Executive Council in August 2016 under the 2016 – 2018 External Borrowing Plan.

“Accordingly, I have attached, for your kind consideration, relevant information from the Honourable Minister of Finance, Budget and National Planning the specific outstanding projects under the 2016 – 2018 External Borrowing plan for which legislative approval is currently sought.

“I have also directed the Minister to make herself available to provide any additional information or clarification which you may require to facilitate prompt approval of the outstanding projects under this plan.”

Defending the request, which stakeholders have roundly condemned across board, Buhari insisted that it was necessary to resort to external borrowing to fund the financial gap required to address the huge infrastructural deficit in the country such as power, railway, road projects, assuring lawmakers of his resolve to implement the projects in a financially sustainable manner.

Breaking down the total cost of implementing the projects, which stands at $29.960 billion, the President’s letter informed that Projects and Programme loan will gulp $11.274 billion while Special National Infrastructure Projects will take $10.686 billion. There is also Euro Bonds of $4.5 billion and Federal Government Budget Support of $3.5 billion.

He clarified that the projects would be implemented across the 36 States of the Federation and the Federal Capital Territory and revealed that the projects and programmes were selected after positive technical economic evaluation and presumed contribution to the socio-economic development of the country.

Some Nigerians have wondered the rationale behind incurring more debts, especially given the IMF’s elaborate warnings on rising debt. Many others have knocked the Federal Government for the timing of the loan request, saying it lacked foresight for economic analysis.

In its reaction, the Centre for Social Justice through its Lead Director, Eze Onyekpere, condemned Buhari fresh moves, saying that rather than continue to rely on borrowing to finance its activities, the Federal Government should adopt other sources of funding the infrastructure needs of the country

“The rising debt service of N2.45tn appears to be crowding out expenditure in critical infrastructure and human development. At the end of the day, if there is a shortfall in revenue, salaries and overheads will be drawn down, debts will be serviced whilst capital projects suffer.

“At 23.74 per cent of overall expenditure, the debt service is high and it is higher than capital expenditure. When the Sinking Fund of N296bn is added to debt service, it comes up to N2.746tn which is 26.61 per cent of the overall budget.

The Centre maintained that the Federal Government should broaden the sources of revenue for budget and programme funding in order to check the high rate of debt burden.

The Punch reported that the Director-General of NECA,  Mr Timothy Olawale, described the trend of Nigeria’s rising debt profile as ‘disturbing’, stating that the figures released by the Debt Management Office earlier in the year showed that the Federal Government’s domestic debt profile rose to N15.814tn in September, 2018 from N15.629tn in June, 2018 (1.19% increase). He foresee a situation where the trend takes a toll on the developmental capacity of Nigeria despite government’s financial managers’ argument that the rate of increase is within a manageable limit as a chunk of the 2020 budget would be used for debt servicing rather than developmental projects.

According to him, the “bourgeoning debt profile calls for concern as our appetite for debt skyrockets,” and likely to have a catastrophic outcome for the nation in the long run.

He advised the federal and state governments, to as a matter of urgency, take deliberate steps aimed at cutting the cost of governance and recurrent expenditure.

A former Director-General, Abuja Chamber of Commerce and Industry, Mr. Chijioke Ekechukwu, said the rising debt portended danger for the economy just as the Nigeria Employers’ Consultative Association expressed  fear over the mounting debt burdens of the nation.

In the same vein, the Registrar Chartered Institute of Finance and Control of Nigeria, Mr Godwin Eohoi, said that with the Federal Government spending about 20 per cent of its budget size servicing the country’s debt, any further plan to increase the country’s debt profile might result in a debt crisis.

For Mr ‘Laoye Jaiyeola of the NESG, further borrowing should only be used to develop critical infrastructure as the country was already spending so much on recurrent expenditure.

“If by this time, we are still borrowing and spending 80 per cent of our budget on recurrent expenditure and overheads, it means we are not serious.

“When you are borrowing, make sure you are creating good roads, investing in education and health. Healthy people will bring about more money. So, it is a challenge. We don’t have enough to service our debts but again, we have to see how we can grow.”

The ball now lies in the court of Lawan’s ninth Senate to either understand the plight of the Nigerian economy or tow the line of Buhari’s Federal Government and approve the loan. Though the senate has promised to consider the request based on merit, Nigerians however, harbour the fear that the loan request may be granted even without consideration. This is because the Senate President had earlier hinted that whatever request presented by Buhari to the National Assembly is for the good of Nigerians and will receive express approval.

But cautioning the lawmakers to be well guided, the chairman of the Senate Committee on Local and Foreign Debt in the 8th National Assembly, Senator Shehu Sani, said “We turned down the Federal Government loan request of $29.96bn to save Nigeria from sinking into the dark gully of a perpetual debt trap.”

He that “We don’t want our country to be recolonised by creditor banks. If we had approved that loan request, our external debt could have catapulted to over $52bn and that is not sustainable.

“With the current escalation of borrowing, we will be walking into debt slavery and move from landlords to tenants in our own country.

“They will always tell you that even America is borrowing and I don’t know how rational it is 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.

“Loans are not charities. Most of those encouraging more borrowing are parasitic consultants, commission agents, rent-seeking fronts and contractors.”

All eyes are now on Ahmed Lawan, who many has described as a rubber stamp of the Buhari-led executive, for the next move.


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