Fresh loan request pushes Nigeria’s public debt to over N35.5 trillion

Written by on July 8, 2021

Following yesterday’s approval by Senate of a fresh $6.18 billion external loan request by the executive, there are indications that Nigeria’s documented public debt may exceed N35.5 trillion before end of the year.

The Senate, yesterday, approved a fresh $6.18 billion (which amounts to N2.53 trillion using N410/$ exchange rate) loan request by President Muhammadu Buhari to fund part of the 2021 budget deficit. The deficit stands at N5.6 trillion or 41 per cent of the N13 trillion budget. The deficit is more than the three per cent threshold as established by the Fiscal Responsibility Act, 2007.

The country’s total public debt stock stood at N33.1 trillion as of the end of Q1 in March, though the Minister of Finance, Budget and National Planning, Zainab Ahmed, at the recent African Development Bank (AfDB) meetings held in Ghana, said debts of some states had not been included in the official figures.

Also, the Federal Government’s Way and Means (W & M) advances with the Central Bank of Nigeria (CBN) has been estimated at $25 billion (N10.3 trillion), which the Debt Management Office (DMO) said would be converted to a long-term instrument.

This is besides President Muhammadu Buhari’s approval at yesterday’s Federal Executive Council (FEC) to authorise the 2022 – 2024 Medium Term Expenditure Framework and the Fiscal Strategy Paper (MTEF & FSP) funding of a N5.6 trillion budget deficit through sundry borrowings.

Within the three years covered in MTEF/FSP, the Federal Government plans to take fresh loans amounting to roughly N15 trillion – an amount spread accordingly: N4.893 trillion (2022), N4.75 trillion (2023) and N5.356 trillion (2024). The estimated loans are evenly split between domestic and external sources.

The loan estimates are 60 per cent or N5.6 trillion higher than the total N9.4 trillion earmarked for capital projects in the three years. Next year’s estimated capital vote is N3.262 trillion as against N3.162 trillion proposed for 2023 and N3.155 trillion planned for 2024.

The amount approved in this year’s budget, which is N4.125 trillion, is larger than what is being contemplated for any of the three fiscal years starting from 2022 even though the government wants to increase total spending.

Next year’s budget, though would be adjusted in line with economic realities before presentation, is estimated at N13.982 trillion. It will increase to N15.458 trillion in 2023 while the total spending will jump to N16.772 trillion in 2024.

The proposed new borrowing is about one-third of the total N46.3 trillion the government intends to spend between 2022 and 2024 while capital projects will take just one-fifth of the spending estimates.

Yesterday, the lawmakers approved issuance of $3 billion but not more than $6.18 Eurobond for the implementation of the financing of part of the deficit contained in the approved 2021 Appropriation Act. The Senate said the amount authorised above could be raised from multiple sources, including international capital market, multilateral or bilateral sources.

The loan, when procured, would increase the national debt stock and compound the burden of debt servicing. In the first quarter, the Federal Government spent N1.02 trillion on domestic and foreign debt servicing. The amount, which is contained in the DMO’s debt service payment report for Q1 2021, represents a 35.7 per cent year-on-year increase compared to N753.7 billion expended in Q1 2020.

Debt service is projected to consume 39 per cent of the country’s revenue this year. With over N1 trillion spent in three months alone, experts say the amount of debt service to revenue would surpass the official estimate.

Nigeria’s debt sustainability, like other African countries, has been subjected to intense review in recent weeks with the Director-General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala, and President of AfDB, Dr. Akinwumi Adesina, expressing worries the continent could relapse into a debt trap.

Foreign Loans as presented by the Chairman, Clifford Ordia. The Committee recommended that the Senate approve Buhari’s request for the issuance of $3,000,000,000 but not more than $6,183,081,643.40 Eurobond in the International Capital Market. The External Borrowing of N2,343,387,942,848, according to the panel, should be for the financing of part of the deficit authorised in the 2021 Appropriation Act.

“What we are about to pass is not a new borrowing, it has been approved in the 2021 budget,” he said.

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