Nigeria faces a looming debt crisis as recent approvals for fresh borrowings could propel the nation’s total debt to surpass N107.38 trillion.
The approval initiated by President Bola Tinubu’s administration includes plans to borrow $7.8 billion and €100 million as part of the Federal Government’s 2022-2024 borrowing strategy.
These funds are earmarked to finance critical sectors such as infrastructure, health, education, agriculture, and security, among others.
Tinubu emphasized the necessity of foreign loans to bridge financial gaps and restore economic stability in light of recent reforms, notably the removal of fuel subsidies.
Furthermore, additional financial support from the African Development Bank and the World Bank, totaling $1 billion and $2 billion respectively, underscores Nigeria’s urgent need for economic revitalization amidst challenging times.
As of September 2023, Nigeria’s total debt stood at N87.91 trillion, comprising N31.98 trillion in external debt and N55.93 trillion in domestic debt.
The recent approvals, if fully implemented, could raise the debt burden by at least 22.15%, reaching the projected N107.38 trillion mark by 2024.
Notably, Nigeria aims to maintain a debt-to-GDP ratio of 40%, yet projections indicate this figure may soar to 53.06%, signaling potential fiscal strain.
The utilization of Ways and Means advances, a provision allowing short-term borrowing from the Central Bank, further complicates the debt landscape.
While the government emphasizes economic reforms and infrastructure development, concerns linger over the sustainability of Nigeria’s borrowing trajectory.
Analysts caution that securing and implementing these loans may prove challenging, as evidenced by delays in previous loan disbursements.
Amidst growing debt burdens, Finance Minister Wale Edun acknowledges the need for fiscal prudence, advocating for reduced reliance on borrowing to stabilize the economy.
As Nigeria navigates its financial landscape, the balance between development aspirations and fiscal sustainability remains a critical challenge.
Senate Initiates Probe into N30tn Ways and Means Loans under Buhari Administration
The Nigerian Senate has embarked on a comprehensive investigation into the disbursement and utilization of the N30 trillion Ways and Means loans obtained by the Central Bank of Nigeria (CBN) during the administration of former President Muhammadu Buhari.
The Ways and Means facility allows the CBN to provide financial support to the government to cover budget shortfalls.
The decision to probe the massive loans comes amid concerns about the transparency and accountability surrounding the utilization of these funds, particularly as the country grapples with economic challenges, food crises, rising inflation, and worsening insecurity.
The Senate’s investigation aims to shed light on how the substantial overdrafts from the CBN were acquired and expended under the leadership of former President Buhari.
There is growing apprehension that the indiscriminate spending of the overdrafts, particularly during Godwin Emefiele’s tenure as CBN governor, may have contributed significantly to the current economic predicament facing the nation.
The probe will delve into the details of the N30 trillion overdrafts, with a specific focus on examining the purpose for which the funds were allocated and how they were utilized.
Also, the Senate will scrutinize the N10 trillion disbursed under the Anchor Borrowers Scheme, as well as the utilization of $2.4 billion out of the $7 billion earmarked for forex transactions.
The initiative underscores the Senate’s commitment to ensuring transparency, fiscal responsibility, and prudent financial management in the country’s economic affairs.
It is anticipated that the probe will unearth vital insights into the financial transactions of the past administration, enabling corrective measures to be taken to address any mismanagement or discrepancies discovered.
Foreign Loans Dominate Nigeria’s 2023 Capital Importation, Hits $2.31bn – NBS Report
In 2023, foreign loans dominated Nigeria’s capital importation, according to the latest report from the National Bureau of Statistics (NBS).
The report reveals that out of the total $3.91 billion foreign investment inflow, foreign loans accounted for $2.31 billion, representing 59.1% of the total capital importation.
The NBS data indicates a substantial increase in foreign capital inflow compared to previous quarters.
The final quarter of 2023 saw a notable surge, with foreign capital importation rising from $654.65 million in the third quarter to $1.09 billion.
This surge reflects increased investor confidence and interest in Nigeria’s economic prospects.
However, the dominance of foreign loans in the capital importation landscape raises concerns about Nigeria’s debt profile and sustainability.
While foreign loans can provide crucial funding for development projects and infrastructure, excessive reliance on borrowing poses risks to the country’s fiscal health and economic stability.
It underscores the urgent need for prudent debt management and strategies to diversify funding sources.
The breakdown of the capital importation further reveals that Nigeria received $433.87 million in the first quarter, $771.53 million in the second quarter, $507.71 million in the third quarter, and $594.75 million in the fourth quarter as foreign loans.
The report underscores the importance of addressing structural challenges and creating an enabling environment to attract diverse forms of foreign investment beyond loans.
It emphasizes the need for policies that promote sustainable economic growth, attract foreign direct investment, and reduce reliance on external borrowing.
Ethiopia Joins Ranks of African Defaulters as Grace Period Ends
Ethiopia has officially joined the growing list of African nations facing financial distress as it failed to meet a crucial interest payment following the expiration of a grace period on Monday.
The Horn of Africa nation was slated to pay a $33 million coupon on December 11, a commitment it did not fulfill.
Ethiopia’s Minister of Finance, Ahmed Shide, announced on state television that the government’s decision not to make the payment was rooted in its commitment to treating all creditors uniformly.
This default places Ethiopia in the company of other African nations, including Zambia, Ghana, and Sri Lanka, that have faced challenges meeting their Eurobond obligations in recent years.
The government had previously reached an agreement with bilateral creditors to temporarily suspend debt payments, reflecting its struggle to manage financial obligations amidst economic challenges exacerbated by a civil war in the Tigray region.
In response to the default, an ad hoc committee of bondholders expressed disappointment, deeming the decision unnecessary and unfortunate.
Ethiopia’s proposal for debt restructuring involves requesting bondholders to extend the maturity period from July 2028 to January 2032 while reducing the coupon rate from 6.625% to 5.5%, with the face value remaining at $1 billion, thereby avoiding a haircut for creditors.
The nation is seeking to renegotiate its financial commitments through the Group of 20’s Common Framework, a mechanism that coordinates debt relief efforts from both public and private lenders.
Ethiopia’s financial challenges underscore the broader economic struggles faced by nations on the continent, as the government grapples with the aftermath of the Tigray conflict and endeavors to navigate a path to fiscal stability.
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