With just 18 days remaining until President Muhammadu Buhari hands over the reins of power to President-Elect Bola Ahmed Tinubu, an important development has emerged.

President Buhari has presented a formal request to the Senate, seeking their approval for an $800 million loan facility from the esteemed World Bank. This timely request has generated significant attention as Nigeria prepares for a crucial transition of leadership.

President Buhari, in his letter to the Senate, outlined that the $800 million loan facility is specifically intended to finance the National Safety Net Programme. This social welfare initiative aims to provide essential support to vulnerable households across the country. By disbursing financial assistance directly to the bank accounts of identified beneficiaries, President Buhari aims to ensure that the funds reach those in dire need, promoting transparency and accountability.

It is important to note that President Buhari’s request for the loan has already received the approval of the Federal Executive Council (FEC), signifying a significant step forward in the process. However, the final decision rests with the Senate, which holds the authority to grant approval. President Buhari’s decision to follow the proper democratic channels and seek the Senate’s approval underscores his commitment to due process and responsible governance.

The intended beneficiaries of the loan are approximately 50 million vulnerable Nigerians, representing 10 million households. This loan aligns with the government’s broader subsidy palliatives measures and is especially timely, considering the planned removal of subsidies in June. By providing financial support to the most marginalized segments of society, the government aims to mitigate any potential economic challenges that may arise during this transition period.

Amid concerns over Nigeria’s growing debt profile, which reached N46.25 trillion or $103.1 billion as of December 31st, it is crucial to place the $800 million World Bank loan into perspective. This loan represents a fraction of Nigeria’s overall debt and serves a specific purpose—supporting the National Safety Net Programme and uplifting the lives of vulnerable Nigerians.

During the induction ceremony for the 10th National Assembly, the Director-General of the Budget Office, Ben Akabueze, addressed the elected members and highlighted Nigeria’s concerning debt-to-revenue ratio despite a relatively healthy debt-to-GDP ratio. He emphasized that the newly elected members, responsible for reviewing and approving the federal government’s annual budgets as well as loan requests, need to be aware of this issue.

Akabueze mentioned that Nigeria has one of the lowest ratios of Gross Domestic Product (GDP) to debt in the world, which initially seems positive. However, the aggregate budget of all levels of government in the country only amounts to about N30 trillion, which is less than 15 percent of the GDP. In comparison, other African countries like South Africa spend around 20 percent of their GDP, and countries like Morocco spend around 40 percent. Nigeria’s spending ratio of 15 percent is insufficient for the country’s needs, leading to fierce competition for limited resources.

This limited fiscal space determines the country’s borrowing capacity. The issue lies not in the high debt-to-GDP ratio but in the inadequacy of revenue to sustain the debt burden. Consequently, Nigeria faces a high debt service ratio, which is the percentage of revenue used to service debts. When a country’s debt service ratio exceeds 30 percent, it indicates trouble, and Nigeria is approaching 100 percent, indicating a significant problem.

Due to these constraints, Nigeria has limited borrowing capacity. The size of the budget depends on the revenue generated and the reasonable borrowing capacity. Consequently, the government must prioritize projects based on available resources. It is important to note that Nigeria cannot be classified as an oil-rich economy like Saudi Arabia or Kuwait, where oil production and revenue are significantly higher. Despite having a population of over 200 million, Nigeria currently pumps only 1.9 million barrels of crude oil per day, indicating its non-abundance in oil resources.

As Nigeria stands on the cusp of a transition in leadership, President Buhari’s request for an $800 million loan facility from the World Bank carries weighty implications for both the incoming administration and the nation’s economy.

The incoming administration led by President-Elect Bola Ahmed Tinubu inherits not only the responsibilities of governing a nation but also the challenges of managing a mounting debt burden. With limited time for the new administration to settle in and formulate economic strategies, the added pressure of servicing a substantial loan could hinder their ability to address other pressing issues effectively. It is crucial to carefully assess the long-term consequences of further indebting the country and to consider alternative approaches to economic stability and growth.

Moreover, the economic impact of increased borrowing should not be underestimated. Additional loans can strain the national economy, potentially leading to increased inflation, reduced investor confidence, and limitations on future development. As Nigeria seeks to position itself as an emerging global economy, the sustainability of its debt becomes a critical factor in attracting investment and fostering a stable economic environment.

While the National Safety Net Programme aims to alleviate poverty and support vulnerable Nigerians, the financing strategy must be approached with caution and meticulous planning. Finding a balance between social welfare initiatives and fiscal responsibility is essential to ensure long-term stability and avoid jeopardizing Nigeria’s economic prospects.

As Nigeria prepares for a transition of power and grapples with its debt burden, it is vital for the incoming administration to adopt a comprehensive approach to economic management. This includes exploring strategies for debt reduction, enhancing revenue generation, and implementing robust fiscal policies that foster sustainable growth and development. By carefully evaluating the implications of further borrowing and adopting prudent financial practices, the new administration can navigate these challenges and set the country on a path towards a prosperous future.