President Buhari, who made the appeal, during his speech at the 76th session of the UN General Assembly in New York, particularly urged G20 countries to extend their debt suspension initiatives to all developing countries, least developed countries, and Small Island developing states facing fiscal and liquidity challenges.
While noting that developing countries have been faced with unsustainable debt burdens even before the pandemic, the president stated that, “The COVID-19 pandemic has increased the risk of a new wave of deepening debt, where vital public financial resources are allocated to external debt servicing and repayments, at the expense of domestic health and financing for critical developmental needs.”
He added: “I must commend the current initiatives by the international financial institutions and the G20 aimed at significantly mitigating the economic situation of the indebted countries and urge for more efforts in this regard.
“Therefore, there is an urgent need to consider expansion and extension of the debt service suspension initiative to include all developing, least developed countries and small island developing states facing fiscal and liquidity challenges.
“In addition, a review of the eligibility criteria for debt suspension, including outright cancellation, is needed for countries facing the most severe challenges.”
The president’s plea came amid criticisms from Nigerians over his administration’s consistent borrowings, with his most recent request for an external loan sent to the Senate on September 14.
In his letter, the president sought the lawmakers’ approval to borrow a loan of four billion dollars and 710 million euros from bilateral and multilateral organisations to fund the deficit in the 2021 budget.
He said the loan request, an addendum to the 2018-2020 borrowing plan, is needed for some “critical projects.” He also asked the lawmakers to approve grant components of 125 million dollars.
The request came barely two months after the National Assembly approved his earlier request to borrow 8.3 billion dollars and 490 million euros loans contained in the initial 2018-2020 borrowing plan.
Anxiety Over Debt Accumulation
Financial and political analysts have lamented the rate at which the administration of President Buhari engages in foreign borrowing, stating that the nation’s external debt stock could hit over $36 billion if the National Assembly approved the latest $4.054 billion new borrowing request.
It would be recalled that former President Olusegun Obasanjo had to launch a relentless debt relief campaign for Nigeria when in 2004 the nation’s external debt stood at $36 billion, with the country spending more on interest payments than on health care and education put together.
This debt relief effort yielded fruit on June 29, 2005, when the Paris Club and Nigeria agreed on a total sum of 18 billion dollars debt relief package, with the country paying off the balance to free the nation.
Official figures of the Debt Management Office (DMO) put the external debt stock at 32.859 billion dollars, as of March 31, this year.
Doubts Over Borrowing Rationale
Some analysts believe that one area requiring critical analysis in the president’s recent letter to the Senate requesting for the approval of $4.054 billion, €710 million and $125 million external borrowings, is the assertion that the projects to be funded with the new loans, spread across the six geo-political zones of the country, would bring about employment generation and poverty reduction, as well as protection of the most vulnerable and very poor segments of the Nigerian society.
They also queried if the previous loans have impacted positively on unemployment and poverty across the country.
The main opposition party, Peoples Democratic Party (PDP) recently lamented what it described as the reckless borrowing by the President Buhari-led government.
The opposition party, while reacting to the recent request of President Buhari to the national assembly, requesting another loan, described the recent demand as further mortgaging the country, warning the National Assembly to protect generations unborn.
In a statement by its National Publicity Secretary, Kola Ologbondiyan, the party lamented the reckless borrowing, noting that the All Progressive Congress-led government already accumulated N33.107 trillion debt, noting that the government had nothing to show but decayed infrastructure and a depressed economy.
“With the fresh request to take N2.66 trillion loan and an additional N5.62 trillion loan proposed for the 2022 budget, the government will put Nigeria in a N40-trillion debt with no clear-cut repayment plan,” the statement noted.
The opposition accused the Buhari government of engaging in excessive borrowing “instead of seeking ways to reduce the liability they have brought upon our nation.”
The PDP called on the National Assembly to investigate hearing on all the loans collected by the president especially with allegations that they are being diverted to the personal pockets of APC leaders.
Despite this call on the national assembly not to grant further approval for any loan, the Senate President, Ahmad Lawan, has continued to strongly defend the decision to rely on foreign loans to fund developmental projects in the country.
Speaking at the end of deliberation on the 2020-2024 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF-FSP) in Abuja, Lawan said the recourse to foreign borrowings remained the only way to fast-track infrastructure development in the country.
Lawan, who acknowledged the concerns of well-meaning Nigerians, regretted that the “Peoples Democratic Party (PDP)-led administrations, which earned huge oil revenues failed to make hay when the sun shone, by fixing the comatose infrastructure in the country.”
Also, a member of the upper chamber of the national assembly, Senator Solomon Olamilekan Adeola, blamed former Nigerian leaders for the country’s high debt profile.
According to Adeola, who is the Chairman of the Senate Committee on Finance, the high debt profiles accumulated between 1999 and 2015, which had Obasanjo, Yar’Adua and Jonathan as leaders.
The lawmaker disclosed this during consideration of the 2022-2024 Medium Term Expenditure Framework and Fiscal Strategy Paper.
“The borrowing you are saying is accumulated borrowing. It is not a borrowing of this administration alone, it is a borrowing that stems from the days of the military to the days when the Democratic dispensation started.
“It is an accumulated loan, it is not a loan that says that it is the current administration of President Buhari that has borrowed.
“It is a loan that has been borrowed by the previous administration – the Obasanjo, the Jonathan, the Yar’Adua of this world.
“And since the business of government is a continuum, the President of the day has no choice but to continue to pay back all these loans that have been borrowed by the previous administrations.
“More than three-quarter of these loans you’re seeing were borrowed from the previous administrations, and we are paying back – we are doing what is supposed to be done, the way it is supposed to be done.
“So, when my colleague said that for every sixty-seven naira of any loan that was borrowed, we are using to pay, he should know that more than sixty naira of it are loans borrowed by the previous administration. And that is where we are,” Adeola added.
Immediate past Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, in a chat with SUNDAY INDEPENDENT, said: “The growing stock of debt is a cause for concern. Current levels of debt are already at an unsustainable threshold. If over 80 per cent of revenue is used to service debt, then it is about time to slow down on debt accumulation.
“From reports, this request is new as it was not covered in the original borrowing. It is an addendum to the original plan which had already been approved.
“Of course, there is merit in borrowing for infrastructure development, but even at that, the capacity to service the debt sustainably should be a critical consideration. The risk is that at this rate, part of the borrowing will inevitably be used to fund recurrent expenditure. Already, actual revenue can hardly cover the recurrent budget. The risk of ending up in a debt trap is quite high.”
Required: National Growth Strategy
In another interview with Channels TV, a political economist, Professor Pat Utomi, warned that Nigeria runs the risk of entering another debt trap if it keeps borrowing to fill the needs of recurring expenditure.
Utomi urged that Nigeria develop a clear national strategy, which looks at how growth can take place in a sustainable manner in the economy, and then borrow.
“Our country is going through a very trying period. This is a time for statesmen to emerge, not people arguing partisan position on things.
“The Nigerian economy is not growing in any way or shape that can accommodate its needs, population growth, rates, location on the scale of poor countries. It means that in terms of absolute numbers of people living in poverty, this is one of the most terrible places to live in on earth.
“In terms of statistic’s being said, yes, in an absolute sense, the fact of borrowing $4billion is not necessarily something that will kill Nigeria, even though if you look at how much of our revenues go into servicing debt, you have to worry.
“However, there is a converse point here. This country needs to grow like crazy, and it cannot grow unless you invest. The real issue is the targeting of borrowed funds.
“Do I see the plans that these borrowings will facilitate the diversification of the economy? My straight answer is no, I do not see the plan.
“Am I convinced that the targeting is enough to drive the kind of growth that will facilitate the economy to grow in a sustainable manner? I have not been given enough information to believe that it is the case.
“One of the reasons Nigeria is where it is today is that oil price dropped during the heat of last year, compounded by supply chain challenges brought about by the lockdown, which led to revenue shortfall of a significant nature, because we have failed to do something we said we are doing, which is to diversify the base of the Nigerian economy.
“Do I see the plans that these borrowings will facilitate the diversification of the economy? My straight answer is No, I do not see the plan.
“We need to develop a clear national strategy, which looks at how growth can take place in a sustainable manner in this economy, then we can borrow, twice or three times as much as we are borrowing, and I won’t be afraid,” he urged.
To avoid another debt trap, analysts advise the Federal Government to immediately comply with the Revised Guidelines of the 2020 DMO on external and domestic borrowing.
For external borrowing, the Federal Government and its agencies are now required to prepare a National Debt Management Strategy for the approval of the Federal Executive Council (FEC).
“In view of the nation’s unsustainable borrowings and the impending debt overhang, we advise the government to suspend taking fresh loans. A government that has less than two years to leave office must be consolidating on its projects and should not plunge the country into an avoidable debt crisis,” said Olawale, NECA Director-General.