The Abuja Chamber of Commerce and Industry (ACCI) and the Lagos Chamber of Commerce and Industry (LCCI) have both raised concerns over the rising debt profile of Nigeria following President Mohammadu Buhari’s fresh request that the Senate should approve another N2.3tn external loan.
President Buhari has asked the National Assembly to approve N2.3tn ($6.18bn) external loan to enable him to fund part of the 2021 N13.8trn national budget.
The request was contained in a letter addressed to the Senate President, Ahmad Lawan, and Speaker, Femi Gbajabiamila and read at plenary in both chambers on Tuesday.
Buhari said the proposed loan, equivalent of N2.3tn, was to finance the 2021 budget deficit of N5.6tn.
He said the amount was part of N4.6tn that the federal lawmakers had earlier approved for his regime to be borrowed this year as contained in the 2021 Appropriation Act.
He said the loan would enable the Federal Government to fund critical infrastructural projects in transportation, health and education among others.
This is coming barely a month after the Senate approved $1.5bn and €995m external borrowings for the federal government.
The loans were part of the $5.5bn and €995m external borrowings which Buhari had, in May 2020, asked the red chamber to approve to finance various priority projects of the Federal Government and to support the state governments facing fiscal challenges.
Buhari’s fresh letter was titled ‘Request for the Senate’s concurrent approval of donor fund projects under the 2018-2020 Federal Government external borrowing rolling plan’.
The projects listed under the 2018-2020 external borrowing plan, according to Buhari, are to be financed through sovereign loans from the World Bank, African Development Bank, and French Development Agency.
Other funding agencies are, Islamic Development Bank, China EXIMBank, China Development Bank, European Investment Bank, European ECA, KFW, IPEX, AFC, India EximBank and International Fund for Agricultural Development.
He said the total amount expected to be borrowed under the borrowing plan amounted to a total sum of $36,837,281,256, $910,000,000 and Grant Component of $10,000,000.
He said the projects and programmes in the borrowing plan were selected based on positive, technical and economic evaluations as well as the contribution they would make to the socioeconomic development of the country.
He said it would also enable the government to create employment, reduce poverty as well as protect the most vulnerable and very poor segments of the Nigerian society.
Buhari said, “All the listed projects form part of the 2018 — 2020 External Borrowing Plan and covered both the federal and states governments’ projects.
“They and are geared towards the realisation of the Nigeria Economic Sustainability Plan that cut across key sectors such as infrastructure, health, agriculture and food security, energy, education and human capital development and COVID-19 Response efforts.
Meanwhile, Buhari, in another letter on Tuesday, sought the federal parliament’s nod to implement projects meant to be funded with the proposed loan.
Rising debts raising serious sustainability concerns -ACCI, LCCI
The President, ACCI, Dr Al-Mujtaba Abubakar, said the chamber was aware of the government’s plan to fund the deficit in the 2021 budget.
He, however, told our correspondent that the government should be mindful of the adverse effect of excessive borrowing.
Abubakar said, “We, however, urge the Federal Government to take judicious note of the negative side of excessive borrowing, especially on interest payment among others. We particularly called attention to the already high debt service rate and its attendant depletion of revenue earnings.
“We once again call on the Federal Government to minimise borrowing and focus more on cutting the cost of governance. If this is not done, debt service may soon further cripple the economy and dampen any hope of higher GDP growth.
“When other economic indices are considered, it is clear the administration needs to urgently embark on cost chatting measures before it is too late.”
On his part, the Director-General, LCCI, Dr Muda Yusuf, said although the request was not an entirely new proposition, the government should be cautious of growing the country’s debt profile.
He said, “The rising debt profile of government raises serious sustainability concerns. Although government tends to argue that the condition is not a debt problem, but a revenue challenge.
“But the truth is that debt becomes a problem if the revenue base is not strong enough to service the debt sustainably. It invariably becomes a debt problem.”
“What is needed is the political will to cut expenditure and undertake reforms that could scale down the size of government, reduce governance cost and ease the fiscal burden on government.”
Yusuf said it was important to ensure that the debt was used strictly to fund capital projects that would strengthen the productive capacity of the economy, adding that emphasis should be on concessionary financing, as opposed to commercial debts which were typically very costly.
In response to the president’s loan request, Prof. Adeola Adenikinju, an energy economist, told our correspondent that the country had a serious revenue generation problem that should be addressed.
He said that for FG to meet its expenditure, one of the options was to increase the rate of Value Added Tax which in the current economic situation, was impossible.
Adenikinju said, “The withdrawal of subsidy which would have freed up some cash for the government is mired in political debate.
“Also, curbing wastage in expenditure is something the current administration does not seem to be doing well.
“Borrowing in itself is not bad as many countries fund their budgets with debt, but we have to look at the current debt exposure and the ability to pay the loans.
“Debt servicing was reported as almost equivalent to revenue in 2020. The question now is how does the government want to pay back the debt.”
He added, “The country has been overdependent on oil as 90 per cent of foreign exchange comes from it. Now is the time to walk the talk towards economic diversification that has been continuously discussed.
“The govt needs to take intense action and direct policies to industries with the capacity to generate income like manufacturing and tourism. Revenue expansion is critical at this moment; else we will be forced to keep borrowing.”
Fresh N2.34tn loan is for capital projects – DMO
The Debt Management Office on Tuesday said the request by the President, Major General Muhammadu Buhari (retd.) for the National Assembly’s approval for fresh N2.34tn loan was meant to provide funds for capital projects such as power, transport, agriculture and rural development, education, health and water resources.
This, it said, was in line with the 2021 Appropriation Act.
The DMO made the clarification in a statement titled ‘Clarification on Mr President’s request for NASS’s resolution for N2.34tn new capital raising’.
According to the statement, provision for the loan had been previously made in the 2021 Budget which was approved in December 2020.
The statement read, “The proposed new capital raising is the new external borrowing already provided for in the 2021 Appropriation Act.
“It will be recalled that the President signed the 2021 Appropriation Bill which included new domestic and new external borrowing into law after the approval of NASS.
“Accordingly, the new capital raising has already been approved and is now being presented to NASS in order to fulfil the provisions of Sections 21 and 27 of the Debt Management Office (Establishment, Etc.) Act, 2003.”
The statement added that the loan would be used for capital projects, such as power, transport, agriculture and rural development, education, health and water resources.
It added that the proceeds were to be deployed to capital projects in various sectors of the economy including power, transport, agriculture and rural development, education, health and water resources that were included in the 2021 Appropriation Act.
