Nigeria’s Debt Burden to Hit N19.3tn by December

• Nigeria’s Debt Burden to Hit N19.3tn by December

Analysts have cautioned the government against plunging the nation into another debt trap, even as there are plans to raise funds from external sources to finance critical infrastructure.

If the federal and state governments continue to rely heavily on debt instruments for the financing of the country’s infrastructure needs, then, Nigeria’s total debt burden will be hitting the N19tn mark by the end of this year.

Based on figures obtained from the Ministry of Budget and National Planning, the country’s total debt stock is expected to rise by N6.72tn this year from the 2016 figure of N12.58tn, making the total debt liability to rise to N19.3tn by the end of 2017.

The frequency of borrowing by the federal and state governments has become a source of worry to many analysts, who sound a note of caution that the country may be heading for another debt trap if restraint is not exercised.

According to the Economic Recovery and Growth Plan, Nigeria’s public debt has increased in recent years as the Federal Government has increased borrowing to finance budget deficits owing to declining revenue.

The country’s domestic debt profile is expected to rise by N2.34tn to N12.43tn this year from N10.09tn in 2016, while the foreign component is being projected to increase by N4.38tn from N2.48tn to N6.86tn.

The document stated that the focus of the government’s debt would be shifted from domestic borrowing to foreign sources, as loans from international financial institutions are cheaper and have longer repayment periods.

For instance, the ERGP stated that while the proportionate share of foreign financing would increase from the current level of about 28 per cent to almost 72 per cent in 2020, that of domestic financing would decrease gradually from about 54 per cent in 2016 to about 26 per cent by 2020.

The Federal Government is currently seeking $29.96bn in loans from the World Bank, African Development Bank and Japan International Cooperation Agency.

The other international financial agencies the government plans to borrow from are the Islamic Development Bank and China Exim Bank.

Some of the projects to be funded by the loans are the Mambila hydroelectric power, $4.8bn; railway modernisation (Calabar-Port Harcourt-Onne Deep Seaport segment), $3.5bn; Abuja mass rail transit project (phase two), $1.6bn; and Lagos-Kano railway modernisation project (Lagos-Ibadan segment, double track), $1.3bn.

The rest are Lagos-Kano railway modernisation project (Kano-Kaduna segment, double track) $1.1bn; ‘others’, $6bn; Eurobond, $4.5bn; Federal Government Budget Support, $3.5bn; social (education and health), $2.2bn; agriculture, $1.2bn; and economic management and statistics, $200m.

The Budget and National Planning ministry said with the shift in focus to more foreign borrowing, the domestic financing sector would be more available and accessible to the private sector, thus avoiding crowding out.

This, it added, would provide the private sector with a leading role to drive economic growth, create jobs and reduce the rate of poverty in the country.

The ministry noted that the projects that would be financed with external loans would be those that would support non-oil exports, and/or reduce import-dependence such that there would be no risk of external debt overhang.

Reacting to the development by the Federal Government, some financial analysts, who spoke to our correspondent, said borrowing might be a last resort by the government to survive its revenue challenges.

They said there was a need for the government to urgently begin a readjustment of its fiscal position in a way that would enable it generate more revenue from taxes.

The Director-General, Institute of Fiscal Studies of Nigeria, Mr. Godwin Ighedosa, said the expenditure of the government needed to be reduced in a manner that would reflect the rate of revenue decline.

He stated, “We have so much relied on oil revenue in the last 45 years and with the decline in oil revenue, time has come now for us to review our fiscal position.

“There is a need for reform of the country’s tax administration system to enable the Federal Government to raise more revenue from Capital Gains Tax. Our tax to Gross Domestic Product ratio is one of the lowest in the world and we need to address that.”

The Registrar, Chartered Institute of Finance and Control of Nigeria, Mr. Godwin Eohoi, said the need to get the economy back again might have influenced the decision for huge borrowing.

He stated that while borrowing in itself was not a bad economic strategy, the way in which such borrowing was being used was important.

Eohoi said, “I am not worried about borrowing because debt is a leverage, but it depends on what the loan is used for. It must be used for productive purposes and not to finance recurrent expenditure.

“Oil prices are just beginning to bounce back and so I see the borrowing as a last resort to prevent the total collapse of the economy since we had a serious revenue shortfall. When you have a decline in revenue, you have to resort to borrowing.”