With the approval of new borrowings for the Federal Government and new securitization of the Central Bank of Nigeria’s N7.3tn Ways and Means advances, Nigeria’s total debt (federal government and state loans) could soon reach at least N107. 38tn.
This is in accordance with the Senate’s December 2023 approval of President Bola Tinubu’s request to borrow $7.8 billion and €100 million as part of the Federal Government’s borrowing schedule for 2022 to 2024.
In order to finance infrastructure, health, education, agriculture, insecurity, and other sectors, Tinubu claims that on May 15, 2023, the Federal Executive Council, which was presided over by former President Muhammadu Buhari, approved the loan facility.
He explained in his request for approval that the foreign loan was required to close the budgetary gap and restore order to the nation’s economic operations.
The president wrote to the Senate in November 2023, saying, “The Senate is invited to note that African Development Bank and the World Bank Group have indicated interest to assist the country in mitigating the economic shores and recent reforms with a sum of $1 billion and $2 billion, respectively, following the removal of fuel subsidy and its impact on the economy in the country.”
“In addition to the Federal Executive Council approved 2022-2024 external borrowing plan. Consequently, the required approval is 7,864,508,559 dollars and in terms of euros, 1000 million euros.“
I would like to underscore the fact that the projects and programmes borrowing plans were selected based on positive technical economic evaluations as well as the expected contribution to the social economic development of the country, including employment generation, skills acquisitions, supporting the emergence of more enterprenuers, poverty reduction, and food security to improve the livelihood of an average Nigerian.”
He added, “Given the nature of these facilities and the need to consolidate the country to normalcy, it has become exigent to request the senate consideration and approval of the 2022- 2024 external borrowing plans to enable the government to deliver its responsibilities to Nigerians through expeditious disbursement and efficient projects implementation.”
Data from the Debt Management Office show that as of the end of September 2023, Nigeria had a total debt of N87.91 trillion. The debt breakdown showed that the total amount of debt was N55.93 trillion for domestic debt and N31.98 trillion ($41.59 billion) for export debt.
Both the federal government and the state governments are included in the overall debt. In 2024, the total debt will increase by a minimum of 22.15 percent (or N19.47 trillion) to N107.38 trillion if the borrowing plan is adhered to strictly, as per the recent senate recommendations.
Should the plan be implemented, the foreign debt component of N44.15 trillion ($49.39 billion converted at N891.9/$ and €100 million converted at N969.92/€) and the domestic debt component of N63.23 trillion (old domestic debt of N55.93 trillion combined with new securitized Ways and Means of N7.3 trillion) will make up the total debt.
The Federal Government increased the amount of loans it made abroad by $3.20 billion, from $38.39 billion to $41.59 billion, between January 2022 and September 2023.
This may or may not be covered by the borrowing plan for 2022–2024. Growing the national debt to N107.38 trillion would represent 53.06 percent of the nation’s N202.37 trillion GDP in 2022. 40% of GDP is the goal debt to GDP ratio for the nation.
The nation’s Total Public Debt/GDP was 41.15 percent as of June 2023, according to the Medium-Term Expenditure Framework and Fiscal Strategy Paper 2024–2026.
A clause known as “Ways and Means” permits the government to borrow money from the CBN in an emergency or short-term situation in order to cover budget gaps. Usually, until it is securitized, it is not included in the nation’s overall loan profile.
The National Assembly authorised in May 2023 the securitization of N22.7 trillion from the N23.3 trillion that the CBN had previously advanced. The nation’s overall public debt profile significantly increased as a result.
With a tenor of forty years, a moratorium of three years, and an interest rate of nine percent, the debt was transferred to the DMO. DMO stated that as of June 30, 2023, Nigeria’s total public debt stock was N87.38tn ($113.42bn),” in its release of its total debt profile for the second quarter of 2023.
It covers the total debt, both internal and external, of the Federal Government of Nigeria, the 36 states, and the Federal Capital Territory.“The major addition to the Public Debt Stock was the inclusion of the N22.712tn securitized FGN’s Ways and Means Advances.”
It is significant to remember that the anticipated borrowing has not yet been obtained and, based on analysts knowledgeable about government borrowings, might take some time.
The Federal Government’s budget estimate for 2024 indicates that the total public debt will increase by at least N7.83 trillion.
Wale Edun, the Coordinating Minister of the Economy and Minister of Finance, recently revealed that the nation is asking the World Bank for $1.5 billion.He said to Bloomberg recently, “We’re hoping to get $1bn or $1.5bn from the World Bank for budgetary support.”He also hinted that the country might issue a Eurobond in late 2024.
He noted, “It is a matter of discussion at the moment, but we think we will get the support because we are continuing with our reforms.”
The Federal Government announced in October 2023 that it had obtained two loans for budget support, one from the African Development Bank for $80 million and the other from the World Bank for $1.5 billion.Edun promised that if the government kept up its half of the bargain, it would get the $1.5 billion before the end of 2023.
He said, “The total is $1.5bn. The world today has one of the highest interest rates as the developed world looks to fight inflation. To control inflation, they impose financial restrictions and maintain high interest rates.That implies that, in that situation, interest rates for everyone else become not just exorbitant but also excruciatingly painful, if not unaffordable.
Edun has made a strong case against borrowing, saying that the nation should rely less on borrowing in order to stabilise the economy.
He stated, “The breakdown of different elements shows the direction of this administration in order to stabilise the Nigerian economy for rapid inclusive growth,” during the 2023 presentation of the 2024 budget. It is anticipated that borrowing will be used less frequently.
“The budget deficit is being brought down to about from 6.1 percent to 3.8 percent of GDP. That is a huge change in direction from unlimited borrowing to focusing on revenue and expenditure management. There will be value for money on expenditure and increased revenue. The key target is to increase tax to GDP ratio from under 10 percent to 18 percent in a couple of years. That target, a hugely ambitious one is what we need to meet to reduce reliance on borrowings.”
Before this, Edun, while unveiling an eight-point agenda for the economy, said, “The government is not in a position to borrow if you consider 90 percent debt service to revenue, and behind that, a rising debt to GDP ratio. If you look at the last budget, you will see a borrowing requirement built into it and appropriated by the National Assembly. And that is ongoing.
”High rates of inflation have affected the nation’s ability to enter international markets, according to Patience Oniha, Director-General of the Debt Management Office.
Speaking outside of the African Development Institute of the African Development Bank’s talks to create the African Debt Managers Initiative Network, she stated, “The Russia-Ukraine war continues to cause uncertainty throughout the world.” Foreign investors are therefore a little more circumspect. They are investing in triple-A or double-A rated securities that offer them high rates, four or five percent, and let us use the word “risk-averse.”
Over time, the cost of debt servicing has gone up due to the nation’s growing debt profile.
According to recent estimates from the World Bank, the federal government’s revenue in 2023 might be consumed by debt servicing to the tune of 123.4%.75.92 percent of all revenue received by the federal government between January and July 2023 was used to pay down its debt.