Buhari’s successor to inherit N39.12trn debt as borrowings hit N31trn

By Benjamin Omoike and Godwin Anyebe

President Muhammadu Buhari will leave a staggering N39.12 trillion debt for the incoming president, as his administration’s borrowings have hit an all-time high of N31 trillion.

This is even as the nation’s total external debt is now at $40.06billion as of June 30, 2022, as against the $10.32billion it stood during the same period (June 30, 2015) seven years ago, latest figures from the Debt Management Office (DMO) report has revealed.

Analysts, however, said that the current Nigeria’s debt profile represents a cause for concern, especially considering the dwindling fortunes of the Naira to the Dollar, among other worrying indices.

The National Assembly has approved or at least received budget estimates worth N93.453tn from President Muhammadu Buhari in eight years.

Of the N93.453tn budgeted from 2016 to 2023, a total of N67.4 trillion has been committed to recurrent expenditure, including the payment of salaries and emoluments of civil servants and legislators.

This amounts to 72.1 per cent of the entire budget devoted to recurrent expenditure in the life of the Buhari regime.

The administration met a debt of N12.12tn on June 30, 2015, but it increased it to N42.84tn by June 30, 2022, according to statistics obtained from the Debt Management Office. The increase represents 253 per cent growth over the period.

A breakdown shows that Buhari presented a budget of N6.061tn in 2016, his first after a populist election in 2015. The budget, however, heralded Nigeria’s first recession under the regime.

The budget was increased to N7.44tn in 2017; N9.1tn in 2018; N8.916tn in 2019; and N10.8tn in 2020. The budget for 2021 and 2022 rose to N13.6tn and N17.126tn, respectively. The estimates presented to the National Assembly last Friday for 2023 put the figure at N20.51tn.

The debt problem

The country’s debt rose by N30.72tn between July 2015 and June 2022, according to data released by the DMO.

According to the DMO statistics, Nigeria’s total debt as of June 30, 2015, stood at N12.12tn. By June 30, 2022, the figure had risen to N42.84tn, which showed an increase of 253.47 per cent. Despite the high increase in debt over the years, the government still plans to borrow N8.4tn in 2023.

Just like the massive rise in debt, there has been a huge increase in the expenditure budget under Buhari. The federal government has increased the projected expenditure in its annual budget by about 238.45 per cent between 2016 and 2023, according to reports analysed by one of our correspondents.

Latest data from the Budget Office of the Federation, shows that the government budgeted to spend N6.06tn for the 2016 fiscal year. However, in the recently proposed 2023 budget, the projected aggregate expenditure was pegged at N20.51tn, more than thrice the amount budgeted in 2016.

In the 2023 budget, the government’s N17.12tn projected expenditure consists of N6.9tn recurrent expenditure, N5.9tn capital expenditure and N3.9tn for debt servicing. Statutory transfers amount to N744.11bn; non-debt recurrent costs, N8.27tn; personnel costs, N4.99tn; pensions, gratuities and retirees’ benefits, N854.8bn; overheads, N1.11tn; capital expenditure, N5.35tn, including the capital component of statutory transfers; debt service, N6.31tn; and sinking fund of N247.73bn to retire certain maturing bonds.

Despite the huge allocations, the budgets have failed to trickle down to the productive sector of the economy.

It was gathered that Nigerian manufacturers had slashed their investments by 56 per cent in the last seven years, reflecting a sector buffeted on all sides by poor policies and economic headwinds.

Between 2016 and 2021, manufacturers’ investments tumbled from N489.44bn to N217.22bn, according to data collated by the Manufacturers Association of Nigeria.

“How many companies in our sector are still in operation? Wempco has shut down; WAHUM is struggling, and the rest are just there. When we come for meetings, we will not be more than 11,” the Chairman of Qualitek Industries, Oluyinka Kufile, who is a major player in the aluminum and steel sector, said.

Kufile attributed the situation to a combination of poor policies, arguing that Nigeria had yet to understand its true direction in economic diversification.

The Nigerian economy has witnessed two recessions within the period – one fuelled by a foreign exchange crisis and the other by COVID-19 pandemic. But the responses of the federal and state governments to issues of the economy have been poor, according to analysts.

Insecurity has worsened over the period and the foreign exchange crisis has reached its crescendo with the naira-to-dollar exchange rate rising from N197/$ toN430-N442 in the official market over the period. A dollar sells for N735-N745 at the parallel market.

According to the Deputy President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, the situation is caused by poor foreign exchange and weak policies. He urged the government to eliminate subsidies and create a more convivial environment.

Economists knock budgets

Meanwhile, Economic experts have kicked against the huge budgetary allocations and the excessive borrowing tendency of the government.

A professor of Economics at the Nnamdi Azikiwe University, Awka, Uche Nwogwugwu, said the N93tn budget for eight years had made little impact. He stated, “You may look at the budget assessment in three ways: the accounting or statistical, the impact, and the administrative perspectives. Administratively, the recurrent expenditure has not translated into better standards.

“Some citizens have not been paid their salaries. How then will you expect growth when people cannot spend because they are owed their incomes? On the growth level, Nigeria is still largely oil-dependent. So, nothing’s really changed. Unemployment is high and there are lots of leakages and corruption.

“The impact is not there, even though it should be there, because the potentiality of growth, which is the manpower, is not there.”

An Associate Editor of SPE Journal of Economics and Management, Prof Wumi Iledare, said the funds had not impacted positively, as the country’s misery index was currently far higher than what was obtained in 2015.

He stated, “From your figures, it means almost one-third of the budget was borrowed during the eight-year period. Well, the good indicators of economic output usually are three indices – a combination of the inflation rate, unemployment rate, and exchange rate. So, basically, these indices form what we call the misery index and cumulatively, the impact on society has not been positive from 2015 to now. This is because the misery index today is a lot higher than it was in 2015.

“Of course, you can say the COVID-19 pandemic had an impact. Oil output has been badly affected, and revenue to the government has been significantly lower because of oil output. But if you look at it from the infrastructure point of view, even though some of the projects were started before 2015, overall the impact has not been that positive.”

According to the Chief Economist and Country Manager of PricewaterhouseCoopers, Dr Andrew Nevin, what is more important is not planning or budgeting, but the environment to attract foreign capital.

“If Nigeria continues to be a harsh environment, people will not invest in Nigeria. So, you ask the question, what alternatives exist? I don’t think there is an alternative apart from making it a more attractive environment,” he noted.

The Director-General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Olusola Obadimu, said the Federal Government was merely borrowing to service existing debts.

“We have to start cutting our coats according to our clothes. We have to look for more ways to start earning foreign exchange. We are still dependent on this monolithic source of income, which is crude oil. But the non-oil exports are very low,” he stated.

An economist and former Vice-Chancellor, University of Uyo, Prof Akpan Ekpo, said it was dangerous for the country to hope to fund the budget through borrowing.

Ekpo stated: “The debts keep increasing and the amount of money used to service debts is also quite high. I can recollect that about 70 per cent or so is being used in servicing debts for 2022. That is worrisome. If the government keeps borrowing to fund recurrent expenditures, it is not good for the economy. It will retard growth.”

An Associate Professor of Economics and Statistics, University of Benin, Hassan Oaikhenan, recently said the 2023 budget was already on its way to failing because of its heavy dependence on borrowing.

Oaikhena said: “The budget, from the look of things, will certainly fail. This is against the background that it will be heavily funded from borrowing. It is just a hollow ritual, which means next to nothing. This will just compound the failure of this administration.

“Since the regime’s inception, the country has been plunged into avoidable debts.”

A development economist, Dr Aliyu Ilias, described the budget as problematic due to the huge cost of debt service and the revenue shortfall of the government.

“Nigeria’s budget is having a serious crisis. Debt servicing is taking the majority of our budgets. That is not even the major problem. The major problem is that our own revenue is not even enough to service the debt. Looking at this now, it means Nigerians are going to suffer more,” he added.

Consequently, DMO’s external debts stock report shows that current Nigeria’s total external debt of $40.06billion as of June 30, 2022, represents an increase of 288.18 per cent in seven years.

A breakdown shows that in 2015, 36 states had $3.27billion in external debt while the Federal Government had $7.05billion.

By 2022, states’ external debt rose to $4.56billion, while the Federal Government’s external debt increased to $35.5billion.

The debts included loans from multilateral sources such as the World Bank, the African Development bank and the International Monetary Fund.

They also included bilateral loans from China, France, Japan, Germany and India, as well as commercial sources including Eurobonds and Diaspora bonds.

Nigeria’s external debt ballooned as the naira lost value, increasing Nigeria’s debt service burden and worsening its ability to service debt. The International Monetary Fund recently said that the long-term rate of the depreciation of the naira equated to a loss of 10.6 per cent of its value annually since 1973.

According to the IMF, this rate was 1.5 times higher than the long-term rate of the currencies of other emerging markets and developing economies at 7.2 per cent and sub-Saharan Africa at seven per cent over the same time period.

The IMF said, “Its exchange rate underwent more persistent depreciation. Nigeria’s long-term rate of currency depreciation (on average 10.6 per cent annually since 1973) was 1.5 times higher than both EMDE (7.2 per cent) and SSA (seven per cent). Given limited availability of long-term data, it is difficult to estimate the exact reasons.”

The Bank of America recently said Nigeria’s local currency unit was set to weaken further next year as its current exchange rate to the dollar was well above fair value.

The bank said: “Three indicators, the widely-used black-market rate, the central bank’s real effective exchange rate, and our own currency fair value analysis shows the naira is 20 per cent overvalued.

“We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as 520 per USD.”

During a workshop on tax expenditure organised by the ECOWAS Commission in Abuja, financial experts advised that Nigeria and other West African Countries should move away from reliance on foreign assistance to the financing of developmental projects in the region.

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According to them, over-dependence on financial aid and external loans might affect the long-term prosperity of the entire region.

The Special Advisor to the Director (Custom Union and Taxation in ECOWAS), Gbenga Falana, while emphasising that the debt profile of most of the countries in the sub-region was mounting, stressed the need for West African countries to look inwardly and finance local projects through effective domestic resource mobilisation.

Reacting, the Managing Director/Chief Executive Officer of Cowry Asset Management Limited, Mr Johnson Chukwu, said that high external debt would impose a huge debt service on the economy.

He said: “This will impose a huge debt service on the economy, particularly at a period when we have low revenue from oil sales. If the revenue from oil sales does not improve, then the government will be struggling to meet that debt service obligation to foreign lenders.”

He, therefore, added that the constant increase in debt without a corresponding increase in foreign currency earnings could place Nigeria in a difficult position.