Since June 2023, an estimated $7.82 billion loan was secured from the World Bank. This is aside from the monthly series of bond auctions, with $900 million targeted this month from domestic dollars. But the only result they can deliver is T-Pain—hardship for Nigerians.
In June 2023, the administration secured additional financing of $750 million to boost the power sector. The World Bank also approved $500 million for women’s empowerment in the same month. The coveted $800 million loan in July was to cushion the effects of fuel subsidy removal. In September 2023, $700 million was secured for financing to empower adolescent girls, while in December 2023, a $750 million loan was secured to Nigeria to expand access to clean energy for 17.5 million people.
In June 2024, $2.25 billion was secured to support homegrown reforms: $1.5 billion for economic stabilisation reforms (RESET) and $750 million for resource mobilisation reforms (AMOR). In September 2024, they approved $1.57 billion to improve health outcomes, safety of dams, and irrigation services.
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This month, a $500 million loan was secured for rural access and agricultural marketing. Some of these loans do not align with the Fiscal Responsibility Act. They are not concessionary. For example, the RESET loan was agreed with a high interest rate of 8.33% and a reasonably short amortisation period. But they all get rubber-stamped by the National Assembly regardless of the glaring consequences.
When the government borrows without a credible plan to repay, the last resort, after all attempts have failed, is to monetise the debt—printing money to pay it off, which causes inflation. These practices are already happening in Nigeria, and even the World Bank has warned against them.
Borrowing and printing money are not fundamentally different in their effects on inflation. Both involve promises of future repayment—borrowing with interest payments and money creation with inflationary adjustments.
Borrowing in a foreign currency, like dollars, adds another layer of burden because debt servicing requires the government to buy dollars. This increases demand in the foreign exchange market. The naira gets weakened as more dollars are demanded. A weaker naira means costly imports for an import-dependent economy.
But let’s not get this wrong. Debt is not bad at all. Theory and practices show that it is a good government policy to borrow in bad times and repay in good times. We have seen this happen globally recently, like during the COVID-19 lockdown. Many countries have converted their debt into national wealth. Besides, advanced economies have always been the biggest borrowers.
However, borrowing becomes wrong when the government chooses to mismanage the borrowed funds. Similarly, theory and evidence also show debt mismanagement brings nothing but economic instability to any economy, regardless of how strong the institutions are.
The debt collected by the Nigerian government can only become wealth if the government has credible plans to pay it back by growing the economy. If they do not, the debt will only be spent, and the result we get is nothing but inflation. Many were optimistic and thought the Tinubu administration would be credible. But not anymore.
These World Bank loans Nigeria collected came with stringent conditions to implement. These include unifying the exchange rate and removing subsidies in education, electricity, fuel, and many other sectors. The policies were so harmful that no government has been cold-blooded enough to consider them. But the administrators of the Tinubu administration thought it was worth a try, despite understanding that the policies were not credible enough to guarantee repaying our debt. Well, the trial period has ended, and the people expect results.
In November, the finance minister announced their economic policies had entered the result-delivery stage. The minister even sent appreciative gestures to Nigerians for enduring the side effects of the economic reforms. However, common knowledge tells us that the country is being heavily mismanaged. Alas, the only outcome seen is T-Pain.
The figures from this week show the inflation rate rose to 34.6 per cent in November 2024. Food inflation rose to 39.9 per cent. Even the spin doctors cannot sugarcoat these figures. November was the harvest season when food prices should be lower, so the figures for the festive season would be expected to be much higher.
And when the numbers are this high, one can only predict much higher prices when demand rises in the next few months. We can attribute the rise in inflation to factors like food prices, high importation prices, weaker Naira, and higher costs of utilities, transportation, and more.
But we cannot discount the fact that business owners also pay attention to the fiscal activities of the government. It is common knowledge that annual budgets are being presented to national and state assemblies for approval across the federation. When people see no sign of credible government plans to manage the economy, they will have no option but to look for alternative measures to be profitable or, at best, survive.
Recall that some cement companies once promised to lower their prices, but when they foresaw doubtful policies, they refused to meet their part of the agreement.
Dangote refinery promised Nigerians cheaper fuel, but Nigerians were only entertained by the drama about Malta. Other producers chose to leave the country or close production. And the result of these is supply shortages that lead to higher prices in the country. These are all responses from people who have sensed a lack of credibility in government operations.
Borrowing in dollars and spending in naira will only create a vicious cycle if not managed carefully. Businesses have identified the federal and state governments as institutions with no credible economic plans. With this attitude, if they keep borrowing to run the economy, the constant outcomes will be currency depreciation, inflation, and economic instability.
Of course, when things get worse, the Bretton Woods institutions will happily guarantee more loans, but under much more stringent conditions. So, brace for more T-Pain.
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