Nigeria to sink deeper into debt, fund 2021 budget with N4.28 trillion fresh borrowings

Oladeinde Olawoyin, Premiumtimes

There are fresh concerns over Nigeria’s debt stock as the nation plans to fund the 2021 budget deficit with N4.28 trillion new borrowings.

The new borrowing figures represent about a third of the proposed 2021 budget.

PREMIUM TIMES reported how President Muhammadu Buhari Thursday presented the 2021 budget proposal to the National Assembly.

The president proposed N13.08 trillion expenditure for 2021 and also spoke about government revenue and how the budget will be funded.

Based on some fiscal assumptions and parameters, Mr Buhari announced that total federally distributable revenue is estimated at N8.433 trillion in 2021 while the total revenue available to fund the 2021 Federal Budget is estimated at N7.886 trillion.

This includes Grants and Aid of N354.85 billion as well as the revenues of 60 Government-Owned Enterprises.

The deficit, Mr Buhari said, will be financed mainly by new borrowings totalling N4.28 trillion, N205.15 billion from privatisation proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programmes.

Worrisome debts

In recent periods, there has been furore over Nigeria’s borrowing plans and debt profile.

In August, the Debt Management Office (DMO) said total loans by the Chinese government and affiliate agencies to Nigeria is about $3.121 billion and constitutes only about 3.94 per cent of Nigeria’s total public debt of $79.3 billion as of March 31.

Also, in terms of external sources of funds, the agency said Chinese loans account for about 11.28 per cent of the country’s external debt stock of $27.67 billion by the same date.

The DMO said the clarification was necessary to show that China is not a major source of funding for the Nigerian government, contrary to reports that Nigeria has mortgaged its sovereignty to China through loans.

Earlier in the year, Fitch Ratings, a global rating agency, had said that the rate of Nigeria’s sovereign debt could trigger a downgrade as government battles to raise revenue amid depleting earnings and low oil prices. The agency said Nigeria’s debt-to-revenue ratio could slump before the end of 2020.

Buhari ‘worried’

On Thursday, Mr Buhari emphasised the effect of poor earnings on budget performance.

“Let me emphasise that revenue generation remains our major challenge,” he told federal lawmakers in Abuja.

“Nevertheless, government is determined to tackle the persisting problems with domestic resource mobilization, as there is a limit to deficit financing through borrowing. The time has come for us to maintain a healthy balance between meeting our growing expenditure commitments and our long-term public financial health.”

However, rising debt continues to put a lot of pressure on government’s earnings and performance. In the first quarter of 2020 alone, the nation spent N609.13bn to service domestic debt.

Since the coronavirus pandemic broke out, Nigeria has been under immense pressure to maintain fiscal stability amid collapsing oil revenues.

Oil earning represents about 90 per cent of Nigeria’s foreign exchange earnings.

Trend

Nigeria has borrowed abroad and at home over the past four years to enable it finance its budgets and fund infrastructure projects.

However, as the nation continues to borrow, debt servicing cost is also rising.

In 2019, the nation devised means to tap into concessionary long-term loans to finance budget in addition to borrowing at home, according to Finance Minister Zainab Ahmed.

When the 2020 budget was presented, the government said it would borrow an additional N1.92 trillion in 2020.

In the 2020 Appropriation Bill presented to the National Assembly last October, Mrs Ahmed said about N745 billion would be expected from domestic lenders, while about N850 billion would come from foreign borrowing.

But in March, Nigeria suspended it planned issuance of a $3.3 billion Euro-bond due to the impact of the coronavirus pandemic on global economy.

PREMIUM TIMES’ check showed that Nigeria’s debt stock has risen by over 158 per cent in the last five years.

From N12.12 trillion on June 30, 2015, checks by PREMIUM TIMES revealed that the nation’s debt stock stood at N31 trillion ($85 billion) as of June 30, 2020.

A breakdown of the data, obtained from the DMO Thursday night, shows that external debt (represented as Total Public Debt) stood at N11 trillion while domestic debt stood at N19 trillion.

When the present administration came to office in 2015, the federal government’s total domestic debt stock was about N8.4 trillion, while states’ domestic debts stood at about N1.7 trillion. Checks conducted on Thursday showed that both have risen to N15.4 trillion and N4.1 trillion, respectively.

Data obtained from the DMO also showed that total debt service on the Nigerian government’s external obligations amounted to US$287 million in Q2 2020, divided between US$157 million and US$130 million on market and non-market debt.

As of September 2019, Nigeria’s debt-to-GDP ratio score hit 24.82 per cent, relative to the country’s specific limit of 25 per cent and the threshold limit of 55 per cent revised by international monetary bodies for Nigeria’s peer group countries.

In June, the International Monetary Fund (IMF) predicted a 36.5 per cent Debt-to-GDP Ratio for Nigeria in 2020.

In a piece written for this newspaper in March, Paul Alaje, an economist, referenced a study by the World Bank which found that countries whose debt-to-GDP ratios exceed 77 per cent for prolonged periods, experience significant slowdowns in economic growth.

“In the real sense, every percentage point of debt above this level costs countries 1.7 per cent in economic growth,” he wrote.

In terms of debt-service to revenue ration, a 2019 BudgIT report found that Nigeria’s current debt servicing level hits over 60 per cent relative to 22.5 per cent threshold given by World Bank.

Mr Alaje described this as shameful, because, it “means for every N100 earned by the government, N60 is used for debt servicing, leaving the government with N40.”

In addition to Public-Private Partnership (PPPs) as alternative policy, the economist recommended long-term development plans as part of strategies that can save Nigeria from incessant and purposeless fiscal shortfalls and borrowings.

“Executive and legislature at federal and state level will need to work together to formulate a 10 to 20 years plan called National Economic Development Plan (NEDP). This plan will identify sources of revenue for the implementation