President Muhammadu Buhari has forwarded to the National Assembly a request for an approval to raise the sum of N2, 343,387,942,848 trillion from multilateral and bilateral lenders, to finance the deficit of N5.602 trillion in the 2021 budget.
The amount which is equivalent to USD$6,183,081,643.40 at the Budget Exchange Rate of USD$1/N379, is captured as part of the N4.666 trillion External Borrowing plans proposed and approved through the passage of the N13.8 trillion 2021 budget.
The request was contained in a letter addressed to Senate President Ahmad Lawan and Speaker House of Representatives, and read during plenary.
According to the president, the request was made in line with the provisions of Sections 21(1) and 27(1) of the Debt Management Office (Establishment) Act, 2003.
He disclosed that Nigeria may be able to raise USD$3 billion or more in a combination of tenors between 5-30 years.
Buhari explained that the federal government’s decision to raise the sum from the International Capital Market was due to the recent monetary policy stance that provides for very low interest rates and ease of moderating debt service cost.
He further disclosed that the proceeds of the USD6.183 billion (N2.343 trillion New External Borrowing in the 2021 Appropriation Act) would be used to fund specific Capital Projects in the Budget.
The president said such projects were captured in priority sectors of the economy, namely: Power, Transportation, Agriculture and Rural Development, Education, Health, Provision of Counterpart Funding for Multilateral and Bilateral projects, Defence and Water Resources.
The letter reads : “Request For the Resolution of the National Assembly For: The Implementation of the New External Borrowing of N2.343 trillion (about USD6.183 Billion) In the 2022 Appropriation Act”, reads in part:
“The purpose of this Letter is to request for a Resolution of the National Assembly (NASS) to raise the sum of N2, 343,387,942,848.00 (about USD 6,183,081,643.40 at the Budget Exchange Rate of USD1.00/N379) provided as New External Borrowing in the 2021 Appropriation Act (Item No. 330) to part-finance the Budget Deficit of N5.602 trillion.
“This request is in line with the provisions of Sections 21(1) and 27(1) of the Debt Management Office (Establishment, Etc.) Act, 2003 (DMO Act). Section 21(1) of the DMO states that “no external loan shall be approved or obtained by the Minister unless its terms and conditions shall have been laid before the National Assembly and approved by its Resolution”; while Section 27(1) states that the National Assembly may by a resolution approve, from time to time, standard terms and conditions for the negotiation and acceptance of external loans and issuance of guarantees.
“The President of the Senate may wish to recall that the 2021 Appropriation Act provides for N4,686,775,885,696.00 as New Borrowings(Item No. 328) to part-finance the 2021 Fiscal Deficit, of Which 50% or N2,343,387,942,848.00 (about USD 6,183,081,643.40 at the Budget Exchange Rate of USD1.00/N379) is specified as New External Borrowing.
“The President of the Senate may also wish to note that the allocation of #2.343 trillion to New External Borrowing in the 2021 Appropriation Act is consistent with the Nigeria’s Debt Management Strategy, which seeks amongst other objectives, to moderate debt service costs by accessing relatively cheaper external funds, and to free-up space in the domestic market for other borrowers”
The President in another letter to the Senate, requested for concurrent approval of donor-funded projects under the 2018 – 2020 Federal Government External Borrowing (Rolling) Plan.
In the letter, President Buhari further explained that the projects listed under the 2018 – 2020 External Borrowing Plan, are to be financed through Sovereign loans from the World Bank , African Development Bank (AfDB) , French Development Agency ( AFD) , Islamic Development Bank , China EXIMBank etc , at a total sum of $36.837billion and 910, 000,000million Euro.
‘Request ill-timed’
Experts’ reactions to the president’s decision were divergent, with some saying it’s ill-timed while others said it was in order.
For Managing Director/CEO SD&D Capital Management Limited, Idakolo Gabriel Gbolade, the federal government’s request for additional borrowing of $6.18 billion to finance the 2021 budget deficit is not healthy for the economy at the moment “taking into cognisance the difficulty we are experiencing in loan repayments due to reductions in revenue accruing to the Federation account.”
In a chat with one of our correspondents, Gbolade noted that the “cycle of borrowing will further sink the country in more debt with no clear cut strategy effective enough to service loan repayments.
“Nigeria’s borrowing to fund infrastructural projects should have been designed in a way that the projects funded will repay the loans which is not the case, leaving us with dwindling revenues from oil and non-oil sectors to fund loan repayments with other government obligations.
“The request by the president is ill timed as further borrowings will have a strain on our capacity to meet up with expectations of the people and will further add more economic hardship in the long run.”
‘It’s in order but…’
In his view, a public affairs commentator, Engr. Godwin Ubochi, the president’s request is in order.
According to him, the spending plan of the president at last year’s budget presentation before the National Assembly was an indication that Nigeria would borrow to fund its budget.
He said: “I maintain that there is nothing wrong in borrowing for capital projects that are self- liquidating. My worry is that Nigeria borrowed so much in the past without anything to show for it. Corruption in government, lack of transparency and accountability, inefficiency, incompetence and lack of capacity in governance and financial prudence are Nigeria’s undoing in loan management. The management of this loan is not expected to be any different because nothing has changed in our government system. If anything, corruption level is much higher.
“With a shortfall in government revenue in the midst of a pandemic, it will be difficult to carry on without loan, which should be the last resort after the government has done the needful from within. There is a lot of stealing and wastage in government. Until this is taken care of, further borrowing will lead to a deeper economic crisis.”
Also a political economist and development researcher, Adefolarin A. Olamilekan, told Blueprint that Nigerians should not be too surprised as borrowing was becoming a characteristic of the present administration.
He added that continuous dependence on oil was making it difficult to get other sources of funding the country’s budget.
“This should not be a surprise going by the character of the Nigerian state and the structure of its economy. First, it’s a dependent, de-industrialized economy that is import-driven. Secondly, it runs and survives as a mono-cultural petro dollar and rentier state for revenue. Regrettably, since 1999 the annual budget of the country has always fallen into the prevailing circumstance of borrowing to cover up for the budget deficit, even when we earned so much from crude. Our economic managers still find reasons to borrow. Obtrusively, it’s crystal clear that the 2021 budget is facing an implementation issue.”
To escape the urge for more borrowing, Olamilekan, said government officials must come up with creative ways of tackling the country’s economic challenges
“One is obliged to as a matter of concern for objectivity and national interest, avoid the altar of selfishness. Moreover, a desired policy to address the country’s budget deficit cum economic challenges is not farfetched if the government is serious, especially as present opportunities for creative solutions abound with us. Fundamentally, the Nigeria state must tackle loopholes and gap that have created corruption among revenue generation agencies abusing funds generated by under-declaration and false accounts. Also, the government should align its industrialisation policy on the foundation of sustainable economy revamp,” he said.
