Following President Bola Tinubu’s proposal to the Senate for approval to borrow an extra $7.8 billion and €100 million as part of his 2022–2024 borrowing plan, Nigeria’s foreign debt is estimated to rise to around $51 billion.
The official justification for the borrowing has been challenged by some financial analysts, who contend that the primary purpose of the loan is to provide a short-term solution to the nation’s ongoing balance of payments crisis.
Nigeria had a total national debt of N113.4 trillion as of June 2023, with $43.2 billion in foreign debt and N54.1 trillion in domestic debt. The estimated total state debt is expected to reach N130 trillion due to the depreciation of the naira and the president’s desire for further borrowing.
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The President clarified in a letter to the Senate on Wednesday that the request was based on permission given by the administration of former President Muhammadu Buhari at a meeting of the Federal Executive Council in May 2023. During a plenary session, Senate President Godswill Akpabio read Tinubu’s appeal.
Tinubu’s letter states: “The Senate should take note that the previous administration approved the 2022-2024 borrowing plan during the Federal Executive Council meeting on May 15, 2023. The projects encompass various sectors, with a particular focus on infrastructure, agriculture, health, education, water supply, security, employment, and financial management reforms, among others.
“The total funding required for the projects and programs under the borrowing plan is $7,864,508,559 in dollars and €100 million in euros, respectively. It is worth noting that, following the removal of fuel subsidies and their impact on the country’s economy, the African Development Bank (AfDB) and the World Bank Group (WBG) have expressed interest in supporting the country with $1 billion and $2 billion, respectively, to mitigate economic challenges, in addition to the Federal Executive Council’s approved 2022-2024 external borrowing plan.
“As a result, the requested approval amounts to $7,864,508,559 in dollars and 1,000 million euros. I wish to emphasize that the projects and programs in the borrowing plan were selected based on positive technical and economic evaluations, as well as their expected contributions to the socio-economic development of the country. This includes generating employment, fostering skill acquisition, supporting the emergence of more entrepreneurs, reducing poverty, and ensuring food security to enhance the average Nigerian’s livelihood.
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“These projects and programs will be implemented in all 36 states of the federation and the federal capital territory. Given the current economic challenges facing the country, it has become necessary to use external borrowing to bridge the financing gap, which will be directed towards critical infrastructure projects such as power, railways, and healthcare, among others.
“Considering the nature of these facilities and the urgency to restore normalcy to the country, I hereby request the Senate’s consideration and approval of the 2022-2024 external borrowing plan to enable the government to fulfill its responsibilities to Nigerians through prompt disbursement and efficient project implementation.”
A few financial analysts, however, are concerned about the most recent borrowing round that the FG intends to carry out.
David Adonri, an analyst and Executive Vice Chairman at Highcap Securities Limited, commented to Vanguard over President Tinubu’s request for approval of an additional loan, saying that FGN has overborrowed and is trapped in debt.
“FGN requires new debt to finance the government and meet debt repayment obligations. The situation is even more complicated now that Nigerian Letters of Credit are no longer honoured. This means the economy requires an immediate bridging loan to address the current balance of payment crisis.
“I don’t think the new borrowing relates to FGN’S 2022-2024 borrowing plan. It is to bridge current FX deficit and keep external credit lines open. This panic measure will only give temporary relief. What is needed urgently is for FGN to negotiate with creditors and reschedule outstanding trade and multilateral debts.”
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In his reaction, Tajudeen Olayinka, analyst and CEO, Wyoming Capital and Partners, said: “If we accept the fact that Nigeria’s economy is seriously challenged on all fronts and in a state of disequilibrium, then every effort by government to restore equilibrium at this time should be seen as a reactionary emergency. I think government is trying to improve dollar liquidity in the foreign exchange market, the same way they are trying to deal with myriad of economic problems left behind by former President Muhammadu Buhari: inadequate foreign reserves, humongous stock of public debt, extremely low oil revenue, unsustainable level of revenue to debt service ratio, poor purchasing power and mounting inflationary pressure, etc. So, in a way, additional borrowings to improve confidence in the economy might just be inevitable at this time.”
Continuing, he said: “My advice to government is to ensure they run a comprehensive adjustment programme that can restore equilibrium to the economy, using the right set of people with good knowledge of adjustment programme. I believe the current economic problem is temporary.”
Commenting, Prof Uche Uwaleke, said: “What is the purpose of the loan? What are the terms? What is the source of repayment? These are some relevant questions the lawmakers should ask Mr President.
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The government should stick to its promise of relying more on non-debt financing sources given the fact that the country is already in debt crisis.”
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