President Muhammadu Buhari last Thursday asked the National Assembly to approve $29.960 billion of foreign borrowings. They consist of Projects and Programme loan of $11.274 billion, Special National Infrastructure Projects of $10.686bn, Euro Bonds of $4.5bn and Federal Government Budget Support of $3.5bn.
The new borrowings are tied to projects supported by the World Bank, African Development Bank, Islamic Development Bank, German Development Bank and China EXIMBank.
President of the Senate, Dr Ahmad Lawan, who read the fresh request during plenary in the letter dated November 26, 2019 by President Buhari, however did not give details of the executive communication.
President Buhari made the request a day after the International Monetary Fund (IMF) warned Nigeria against rising debts. The Debt Management Office had said that out of Nigeria's total debt profile of N25.7tn as of June 2019,external borrowing accounted for about 32 per cent while the 68 per cent is domestic.
The Federal Government's 2016 - 2018 External Borrowing plan was approved by the Federal Executive Council in August 2016 and sent to the 8th Assembly in September 2016. But the National Assembly rejected the request in November 2016, saying that it was not accompanied by a borrowing plan. But it only approved a $4.5 billion Eurobond sale alongside five projects out of a total of 39.
The President explained 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 and assured lawmakers of its resolve to implement the projects in a financially sustainable manner.
The Federal Government said it wanted to borrow more from abroad so that 40 per cent of its loans come from offshore sources by 2019 to lower cost and help fund its record budgets. Nigeria has been borrowing abroad to fund projects after a 2016 recession caused largely by low global oil prices, but debt service costs have been rising.
In spite of the Senate's assurance of its commitment to do the right thing about the loan request, groups, including the Nigerian Economic Summit Group and the Employers' Consultative Association expressed concern about the FG's borrowing plan because of its effect on the nation's debt profile.
At 23.74 per cent of overall expenditure, the debt service is high. Specifically, 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 fear is that further increase in the country's debt profile might result in a debt crisis.
The issue is that a $29.960 billion loan in one swoop is huge, almost the equivalent of the nation's annual earnings. And with the request not being accompanied by a borrowing plan, it is a non-starter. Around 2003-2004, the total debt stock of Nigeria was about $33 billion. The then government of President Obasanjo pursued debt forgiveness/debt rescheduling and it was reduced from $18 billion and the country's debt came down to $2 billion. It is our children and grandchildren that will pay these debts.
The truth is that if you utilize a loan properly and productively, there's nothing wrong with it.But a situation where nobody trusts the Nigerian government that the borrowed fund would be utilized well calls for caution. The record of federal government and the 36 states of the federation in financial management is that we cannot encourage them to go for such whopping amount.
With the present posture of the 9th Senate, there is fear that this present Senate and its leadership would not accord the request due diligence. There is no indication that the borrowing plan has been presented and the present Senate leadership would not request for the borrowing plan and other props as the Executive could take advantage of this pliant posture.
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