Nigeria’s debt profile is a problem for the country’s future

Like many third world countries, Nigeria is enmeshed in a mountain of debt to financing corporations and international finance agencies. The latest news about what has now become Nigeria’s loan-taking culture is about a proposed $1.2 billion agricultural loan to be taken from Brazil.

There have been mixed reactions, with many Nigerians criticising the government for the move. For some, it is a new low for Nigeria as Brazil itself is not an economically sound country. Also, the country was badly hit by the COVID-19 pandemic and is set for a path of recovery.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, announced this move while defending the ministry’s proposed 2021 budget and, as the government does every time they intend to take a loan, there was an explanation that the loans would boost food production and ensure food security. Analysts have also defended the move and they claim that Nigeria is simply not earning enough money to fulfil its financial obligations.

And, while presenting the proposed 2021 budget to a joint session of the National Assembly, President Muhammadu Buhari stated that the country would have to borrow the sum of ₦4.28 trillion to fund the 2021 budget. He also said that the country would be spending ₦3.12 trillion servicing debts.

The implication of this is that the country would be borrowing more money to fund the budget, thereby incurring more debts. While this seems illogical to the layman, it has been the method adopted by successive Nigerian administrations.

Nigeria has a long history of taking loans and for most millennials, they never saw a country that was not indebted to anyone. During the military administration of Ibrahim Badamasi Babangida in the 1980s, Nigeria was caught up in a financial mess and had to adopt what was called a Structural Adjustment Policy (SAP). It was a period of recession for the country and many sectors were hit irrecoverably. Individuals and families also bore the brunt of this and many businesses never recovered. As loans became normal, the country became more and more dependent on them. Fortunately, the civilian administration of President Olusegun Obasanjo that led the beginning of the fourth republic got a much-needed debt relief for the country in 2006. This glimmer of hope was soon to be dimmed as Nigeria resumed borrowing again.

Data from Nigeria’s Debt Management Office shows that total debt as at the end of June 2020 is ₦31.009 trillion. This debt is incurred on behalf of every Nigerian but unfortunately, the direct effects of the proposed projects of the loan when received do not affect every Nigerian.

Nigeria has an obvious governance problem so we still find people in government stealing money and getting away with it. For Nigeria’s politicians, there is no money that is too sacred to steal. This informs why the monies from the oil boom entered personal pockets and there was zero attention to a savings and investment culture.

In the past few years, especially since the inception of the incumbent administration of President Muhammadu Buhari, loans have become the mainstay of the country’s fiscal policy. This habit became scandalous when there were rumours that the conditions of some of the loans taken from the Chinese government are capable of undermining the sovereignty of Nigeria.

The Debt Management Office was quick to issue an explainer on the loans and explain what it was used for. However, the office was silent on the question of whether the government of China can take possession of the projects financed if Nigeria defaults in repayment. The answer given to this question was unsatisfactory, thereby suggesting that there is an element of truth in the speculation.

“Firstly, Nigeria explicitly provides for Debt Service on its External and Domestic Debt in its Annual Budgets. In effect, this means that Debt Service is recognised and payment is planned for. In addition, a number of the projects being (and to be) financed by the Loans are either revenue generating or have the potential to generate revenue.”

DMO

In their defence, the Nigerian government hopes to make enough money from rail travels to repay Chinese loans. This seems plausible but it is obvious that it is not.

The current Abuja-Kaduna rail line is dogged by issues like ticket racketeering and insecurity, with the government being able to do next to nothing about it. If radical institutional changes are not made, there are doubts that Nigeria can make any proper money on rail.

Repayment of loans is difficult as Nigeria is already spending a sizeable portion of her revenue on debt servicing, a move which is unsustainable. Any country that wants to develop would not be approaching finance institutions seeking for money all the time, it is underdog behaviour and Nigeria is not an underdog if the enormous human and material wealth that Nigeria can tap into is considered.

Besides, a lot of these loans have conditions that ensure that the lending countries still earn from the execution of the projects. So a lot of manpower, supervision and materials needed to successfully execute the projects being financed by the loans are not from Nigeria. A large percentage of the money goes back to the lender and for the ones from international financing institutions; local and foreign consultants get a sizeable chunk of the money.

These loans generally do not have any sustainable impact on the common man. Unfortunately, the loans are taken in everyone’s name so they are debts being left for posterity. It is like misspending one’s future today. No doubt, these loans must stop. Developing nations don’t take loans all the time as it is an unsustainable method of developing. This habit of taking loans suggests a lack of initiative on the part of the government. It is time to look inwards and build a sustainable country so that generations to come would not curse their forebears.

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