The Federal Government is currently engaging the World Bank on a fresh $1.5bn loan.
Abbreviated as HOPE, the loan is titled ‘Nigeria Human
Capital for Opportunities and Empowerment’ based on information obtained from
the website of the Washington-based institution.
The objective of the loan is “to strengthen systems for
improved delivery of basic education and primary health services in
participating states.”
The loan is meant to be implemented in 2024 pending approval
by the board of the World Bank Group.
It was also discovered that there was another loan titled:
‘Nigeria Macro-Fiscal Reforms for Economic Stability and Economic
Transformation’.
However, the amount for this other loan was not disclosed as
of the time of filing this report.
There were also pending discussions on five other loan
projects, according to findings.
These include $300m for solutions for internally displaced
persons and host communities’ project, $500m for rural access and agricultural
marketing project-scale up, $750m for the Nigeria distributed access through
renewable energy scale-up project, $700m for sustainable power and irrigation
for Nigeria project, and $500m for NG accelerating resource mobilisation for
reforms PforR.
The discussions will determine if the loans will become
active or dropped.
So far, Nigeria has secured a total of $1.95bn in loans from
the World Bank in the first four months of President Bola Tinubu’s
administration.
The first was the $750m approved on June 9, 2023 to boost
Nigeria’s power sector.
The second was $500m to help the country’s drive for women’s
empowerment and was approved on June 22, 2023.
The third was a $700m loan to enhance adolescent girls’
learning and empowerment, and was approved on September 21, 2023.
The International Bank for Reconstruction and Development
and the International Development Association, which make up the World Bank,
have, over the years, advanced loans to Nigeria.
The IBRD lends to governments of middle-income and
creditworthy low-income countries, while the IDA provides concessionary loans –
called credits – and grants to governments of the poorest countries.
The World Bank is Nigeria’s biggest multilateral creditor,
with the country owing about $14.51bn as of June 30, 2023.
Further breakdown showed that Nigeria has $14.51bn IDA debt
and $485.75m IBRD debt by the second quarter of the year.
The Debt Management Office recently said Nigeria’s total
public debt hit N87.38tn at the end of the second quarter.
The figure represents an increase of 75.29 per cent or
N37.53tn compared to N49.85tn recorded at the end of March 2023.
Further breakdown shows that Nigeria has a total domestic
debt of N54.13tn and total external debt of N33.25tn.
While the domestic debt makes up 61.95 per cent of the total
debt, the external makes up 38.05 per cent.
There has been a significant increase in both domestic and
external debts within three months.
The domestic debt rose by 79.18 per cent from N30.21tn,
while the external debt rose by 69.28 per cent from N19.64tn in the first
quarter of 2023.
In its 2022 Debt Sustainability Analysis Report, the DMO
warned that the Federal Government’s projected revenue of N10tn for 2023 could
not support fresh borrowings.
According to the office, the projected government’s debt
service-to-revenue ratio of 73.5 per cent for this year is high and a threat to
debt sustainability.
It noted that the government’s current revenue profile could
not support higher levels of borrowing.
In a report titled, ‘Report of the Annual National Market
Access Country Debt Sustainability Analysis,’ the debt office said, “The
projected FGN debt service-to-revenue ratio at 73.5 per cent for 2023 is high
and a threat to debt sustainability.
“It means that the revenue profile cannot support higher
levels of borrowing. Attaining a sustainable FGN debt service-to-revenue ratio
would require an increase of FGN revenue from N10.49tn projected in the 2023
budget to about N15.5tn.”
The DMO stated that the government must pay attention to
revenue generation by implementing far-reaching revenue mobilisation
initiatives and reforms, including the Strategic Revenue Growth Initiatives and
all the pillars with a view to raising the country’s tax revenue to Gross
Domestic Product ratio from about seven per cent to those of its peers.
The Federal Government will be unable to borrow a lot as it
nears its self-imposed debt limit of 40 per cent, according to the DMO.
To reduce borrowing and budget deficit, the DMO stated that
the government should encourage the private sector to fund some of the capital
projects that were being financed from borrowing through public-private
partnership schemes.
It added that the Federal Government could reduce borrowing
through the privatisation and/or sale of its assets.
‘Borrowing plan stays’
Despite the rising debt, the Federal Government has insisted
that it will stick to its borrowing plan.
Over the years, Nigeria’s low revenue generation has pushed
the government to borrow more borrowing.
However, President Tinubu recently expressed his
administration’s commitment to breaking the cycle of overreliance on borrowing
for public spending and the resultant burden of debt servicing it places on the
management of limited government revenues.
Tinubu recently said the country could not continue to
service its debt with 90 per cent of its revenue.
He noted that the country was headed for destruction if that
continued.
The President said, “Can we continue to service external
debts with 90 per cent of our revenue? It is a path to destruction. It is not
sustainable. We must make the very difficult changes that are necessary for our
country to get (wake) up from slumber and be respected among the great nations
of the world.
“To build a great nation, we must make bold decisions; even
though it may be painful at the moment, it is not about you and me, it is about
generations yet unborn.”
This indicates that the country may want to explore debt
service suspension or relief or restructuring of the debt.
However, the Director-General, DMO, Ms Patience Oniha, told
Sunday PUNCH that the government had no plans to seek debt service suspension
or restructure the debt.
She said, “With the DSSI, the multilaterals were not giving
any relief, only the bilaterals. For Nigeria, we don’t have many bilateral
loans. They are very small and they are all concessionary.”
She further explained that there were some costs attached to
the debt suspension programme, which made the country opt out of it in the
past.
Oniha stressed that the current administration was making
significant efforts to boost revenue, which meant that the high debt service to
revenue ratio was expected to decline.
“You can see a lot happening in revenue. If revenue is
increased, your debt service to revenue ratio will improve. So, do you need to
restructure?” she queried.
Although the Federal Government said it would stop taking on
new borrowings, she clarified that it planned to stick to the borrowing target
approved in the 2023 budget.
The immediate past President, Muhammadu Buhari, signed a
N21.83tn budget for the current year, which had a deficit of N11.34tn.
The deficit was projected to be financed from N8.8tn new
borrowings, N1.77tn drawdowns on loans secured for specific development
projects and N206.18bn privatisation proceeds.
The Federal Government said although it was not in a
position to keep borrowing, it would still maintain its borrowing plan.
Recently, the Minister of Finance and Coordinating Minister
for the Economy, Wale Edun, while unveiling an eight-point agenda for the
economy, said, “The government is not in a position to borrow if you consider
90 per cent debt service to revenue and behind that, a rising debt to GDP
ratio. If you look at the last budget, you will see that there is a borrowing
requirement built into it and appropriated by the National Assembly. And that
is ongoing.”
At the 2023 Annual Business Summit of Capital Market
Solicitors Association held in Lagos, the DMO noted that Nigeria had budgetary
approval for N1.7tn external debt borrowing.
“Talking about external borrowing, let me clarify that this
year’s budget has room for a new external borrowing of about N1.7tn. When you
convert that at official rates, it gives you about $2bn,” the DMO DG stated.
She also said that Nigeria’s debt had grown since the
country exited the Paris Club, adding that the key driver of the debt was the
budgetary deficit.
Experts caution govt
A political economist, Prof Pat Utomi, cautioned against
fresh borrowings, saying, “It is not advisable to seek new loans.”
He stressed that the country needed a thorough review of the
current loans and how they had been utilised to ensure economic growth.
“The government has not shown enough discipline in the way
it has deployed earlier borrowed money,” Utomi added.
He called for a 50 per cent cut in the cost of governance
and transparency in the utilisation of borrowed funds to stir production and
boost foreign exchange in the country.
A development economist, Aliyu Ilias, told Sunday PUNCH that
with the currency devaluation, the external debt burden would likely double.
“If Nigeria owes a particular amount in dollars, now that we
have naira devaluation, the total amount in naira is going to double,” Ilias
stated.
He called for a moratorium or debt buyback to alleviate the
heavy burden of debt servicing for many African countries, including Nigeria.
“On the issue of debt, I would have wanted a situation
whereby we can have a moratorium on our debt. Or there can be an opportunity
for a debt buyback,” he added.
He also advised the World Bank and the International
Monetary Fund to refrain from lending money to Nigeria until 2025.
“Tell the World Bank and the IMF to hold on and not give
Nigeria money for now. Let us internally grow our revenue. It is because of the
availability of money to borrow that we are into more debt,” he said.
The Resident Representative for the IMF in Nigeria, Ari
Aisen, said the country’s economy could become stable without new IMF
financing, urging the government to strengthen oil production and the tax base.
He said, “The Nigerian economy can aspire to stabilise
without the IMF. It is certainly a sovereign decision of every member country
to approach us in case of need. Let us not forget that oil prices are very
supportive. The balance of payment is in a reasonable position. There are
current account surpluses, meaning that the trade position is good. So, it is
really a question of bringing more of this surplus into the economy. Making
sure oil production benefits the economy is critical.
“Oil revenue and exports should benefit through an increased
production of oil. That is part of why we believe that the government should
actually re-double efforts to be able to increase the intake from the oil
sector. In parallel, revenue should also increase in the non-oil sector through
better compliance. The compliance gap is very large in Nigeria. Very few are
paying their dues. Those who pay may feel that they are paying the entire
burden, so it is important to broaden the tax base and include more taxpayers.
In parallel, governance and good use of funds need to accompany those increased
tax payments so that everyone feels more comfortable with the new reality.
“With a revenue-to-GDP ratio of eight per cent, it is very
difficult to make a meaningful contribution to improve social indicators in
Nigeria. There is an existential issue for the country, and I think the new
administration is spot on in terms of conversations with the private sector on
how everyone can start collaborating to boost revenue and provide public goods
and services.”