The $29.96bn external loan death trap

The rulers of Nigeria are adamant about the acquisition of debts. No one in the federal government wants to listen to the Babel of voices warning that Nigeria’s economy is creaking under the crushing weight of its unsustainable mountain of debts.

Last week as the International Monetary Fund (IMF) warned yet again that Nigeria’s debts profile was becoming unsustainable, President Muhammadu Buhari rebuffed the Breton Woods Institution and re-sent the 2016-2018 external loans request of $29.96 billion to the senate and pleaded with the lawmakers to re-consider and approve the request for the gargantuan external loan to fund the rehabilitation of decaying infrastructure.

The 9th senate of the Federal Republic of Nigeria is studded with friends of the executive. That is the reverse of the 8th senate where wolves in sheep skin who belonged to the ruling party by day time and switched to the opposition party at night, usurped leadership of the National Assembly and terrorised the executive for four years.

The 8th senate rejected the request for the jumbo foreign loan in November 2016 on grounds that the federal government failed to furnish the legislature with details of the projects to be funded by the loan. Aso Rock saw the move as the lawmakers’ response to the prosecution of the senate president, Bukola Saraki for allegedly collecting salaries as senator and governor of Kwara state at the same time and alleged false asset declaration.

All that is history now.  We have a senate that is led by a friend of the men in Aso Rock. What happens to the request for the jumbo loan might be informed more by the unalloyed loyalty of the senate leadership to the men in Aso Rock rather than worries about the ability of Nigeria’s one-handed economy to sustain the debt.

At the moment, Buhari might enter the Guinness Book of Records as the Nigerian president who incurred the highest debts in its history. Buhari met an external debt profile of $10 billion in 2015. In the last four years, he has singlehandedly pushed it to $22 billion. The increase in domestic debt is phenomenal.

If the senate is docile enough to approve Buhari’s external loan request, Nigeria’s foreign debt profile would be sailing perilously close to $55 billion, the highest in history.

The IMF is particularly worried about Nigeria’s ballooning debt profile.

Nigeria is a high risk borrower because it depends on oil exports for 80 per cent of its foreign exchange earnings. Nigeria borrows at 300 times the rate the U.S., the world’s biggest debtor, borrows. That puts a big question mark on Nigeria’s ability to service its debts.

Ironically it is the low revenue instigated by the drastic drop in import duty revenue, weak tax base and an alarmingly high cost of governance that pushes the federal government into endless borrowing.

The low revenue escalated in the 2020 Appropriation Bill into a yawning deficit of N2.1 trillion which has to be funded with massive internal and external borrowings. The move to obtain the jumbo foreign loan is a clear indication that the federal government can no longer fund the rehabilitation of decaying infrastructure from its dwindling revenue. It is a clear evidence of how broke the federal government has become.

Ironically the path of debt for rehabilitation of infrastructure is a dangerous one for Nigeria. Even as foreign loan is cheaper than domestic ones, the cost of servicing an external debt of $55 billion could crush the economy.  At seven per cent lending rate, Nigeria would service its foreign debts alone with N1.2 trillion annually, if the senate approves the president’s jumbo loan request. When the cost of servicing domestic debts is added, Nigeria might have to service its debts with about N4 trillion annually. The estimated revenue for the 2020 Appropriation Bill is a paltry N8.6 trillion.  If the jumbo foreign loan is approved and debt servicing gulps N4 trillion out of the N8.6 trillion expected, the federal government would only use the balance to pay the salaries of its unwieldy civil service workforce and over-pampered politicians. Nothing would be left for capital projects. The scenario is dangerous for Nigeria. The most troubling part of the jumbo foreign loan request is that by the time the loan is approved, Buhari would have perhaps a scant three years to execute the projects the loan is meant to fund. Given the president’s genetically slow pace of making crucial decisions, there are fears that his administration would not have enough time to manage the funds to be raised. He may end up raising the jumbo loan for another administration to manage. That could be disastrous for the economy.

Rehabilitation of the Lagos-Ibadan rail line which was a component of the gargantuan external loans request has lumbered along for three years. The April 2020 completion deadline looks increasingly unrealistic. New projects would move at the same pace.

Besides, while everyone trusts Buhari as a man of integrity when it comes to handling public funds, few of the men around him could be trusted with such enormous public funds.  There are fears that Nigeria’s future could be mortgaged with the jumbo foreign loan only for a chunk of the money to be diverted into private pockets.

The federal government can avert the disaster of excessive borrowing if it cuts its outrageous cost of governance and resorts to funding of infrastructure rehabilitation through private sector participation.

The way out of the quagmire is for government to work out an attractive way of getting private investors to fund key infrastructure projects and toll them appropriately to recover their investments.

The private sector participation in infrastructure development should not be a policy decision.  It should be an act of parliament that would be difficult for successive governments to reverse.

The only option to that is the debt trap that the federal government is setting for itself with the request for the jumbo foreign loan.

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