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National Assembly must curtail excessive borrowing

The federal government’s budget for 2025 will be financed partly with loans. Out of the estimated N48 trillion budget, as much as N13.8 trillion will be borrowed but analysts have doubted if, from previous revenue generation experience, the remaining N34.2 trillion could be sourced from the taxes and other avenues.

Other indicators, like the benchmark of $75 per barrel of crude oil and production of 2.06 million barrels of crude per day in 2025 are moderate and ambitious respectively. The exchange rate of N1, 400 to $1, when the prevailing exchange rate as at November 2024 is N1,735, may not be realistic, unless the federal government intends to return to the era of dual forex windows.

Though Nigerians tend to have acquiesced to the government’s habit of issuing Eurobond, borrowing from Bretton Wood institutions, or other countries, this habit may not really be healthy for the country’s economy. As at the second quarter of 2024, the country’s external loans stood at $42.9 billion, while its domestic loans stood at $48.4 billion. This figure must have increased in the last few months, considering the fact that only last week, the Senate approved the government’s request for a loan of $2.2 billion. The Ministry of Finance and government officials explained away the implications of these loans by arguing that the country’s debt-to-Gross Domestic Product (GDP) is still about 51 per cent.

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In reality, the country’s GDP is about $199.72 billion while the total debt is a little less than $100 billion. In theory, this means that Nigeria’s economy could still produce the wealth to repay its debts, if her debt is about a half of its total domestic products in a year. The reality, however, is that debt repayment has hampered the country’s economic growth, as funds that should have been invested in diverse sectors to enhance productivity are now channelled into debt servicing, to ensure that the country is not blacklisted by international financial institutions for defaulting in its debt repayment.

The implication of rising debt on the economy is not just a theoretical issue; it is a reality that Nigerians are living with. The Tinubu government removed fuel subsidies and devalued the Naira, partly to service domestic and external debts. In the last decade, the increase in the country’s debt ratio to GDP has meant a reduction in the availability of funds for social investment and slow economic growth. In 2021, the ratio of the debt to GDP was 20 per cent, but as at July 2023 it rose to 38.4 per cent and continued to increase to about 49.5 per cent in January 2024. As the debts increase, so does the amount needed to service them. As a corollary, more revenue will be channelled into debt servicing, instead of into efforts that will boost the economy.

The Tinubu government has argued that the increase in the ratio of debt-to-GDP is not alarming and that Nigeria is still credit worthy. It is a fact that the ratio of debt-to-GDP in some countries may be at par with that of Nigeria or even as high as 60 per cent. However, such industrial nations like Japan, Germany, China, Israel, the United Kingdom, and the like may not be worried about their high debt-to-GDP ratio because they are industrialised nations who manufacture goods for the global market. Nigeria’s economy is weakened by the poor state of our industries, and worsened by the weak purchasing power of the population. The main export has remained crude oil. The price of our crude depends largely on international politics and external factors beyond the country’s control. For instance, in 2024, the price of our crude had fluctuated from $77 to a barrel in January to $90.53 for a barrel in April 2024, but in recent months it hovered around $73.73 per barrel. The current rate is sustained at above $70 per barrel because of the tension in the Middle East; it is similar to surviving by chance. The economies of industrialised countries with high debt-to-GDP ratio run differently.

The National Assembly appears to be approving loan requests by the federal government without properly interrogating them. This is unbecoming in a democracy where the Legislature should perform serious oversight over the Executive arm of government. The National Assembly must demand answers to several questions. For instance, what is the status of previous loans? How are previous loans performing? How necessary are the requests for new loans? How would new loans impact the economy? How will the servicing of debts affect the availability of funds for social investments? Are the mounting loans really sustainable?

Our experiences over the years have been that many projects financed with loans are not yielding expected benefits. Many of them are abandoned; others wasting away; many others wrecked by the lack of proper management and accountability, and worse still corruption by economic bandits. At this rate, the country does not appear to reap full benefits of the loans we have continued to repay over the years. Rather, funds are being borrowed and channelled down the drainpipe. The National Assembly should come up with a policy on future or further borrowings by the government, whether domestic or external. The habit of approving all loan requests by the Executive is hurting the economy.

 

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