President Muhammadu Buhari recently wrote to the Senate to request approval for a $800 million loan from the World Bank. The government of Nigeria spends more money on debt repayment than on healthcare and education combined.
In the contemporary world, economic structure comprises a broad array of economic characteristics that may support (and also result from) innovation. These include the prosperity of the local economy, its employment structure, and the competitiveness of area businesses. The Nigerian economy is divided into three major sectors, namely the primary sector which includes agriculture, the secondary sector which includes manufacturing, and the tertiary sector which includes services.
In reality, Nigeria is a mono product economy because oil accounts for over 95 percent its export earnings. About 70 percent of government revenue is derived from oil and over 90 percent of new investments are associated with oil. However, Nigeria’s GDP per capita is $2000, and its average between 1960 and 2021 was $1,867.70.
The country’s debt load had increased dramatically since President Muhammadu Buhari’s administration’s 2015 inauguration, from N12.6 trillion to nearly N80 trillion as the government gets ready to leave office on May 29. Consequently, Nigeria is the fourth most indebted country, with a $13 billion debt as of June 30, 2022. On December 2021, DMO said Nigeria’s debt to China stood at $4.1 billion as of September 2021. This balance is out of a total debt of $6.5 billion available for Nigeria to draw down. Nevertheless, every Nigerian, according to report, will be owing N384, 864 each when in May 2023, with the country’s debt profile expected to spiral to N77 trillion by then.
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Without doubt, after eight years, Buhari’s leadership has routinely used borrowed money to cover annual budget shortfalls. A previous examination of data from the Debt Management Office, DMO, estimated the anticipated budget deficits from 2015 to 2023 to be approximately N47.73 trillion. On the other hand, Buhari has said that “his government had no choice but to borrow its way out of two recessions in the past seven years.” Analysts argue that that Nigeria’s government spends more money on debt repayments than on health and education programs.
As part of its fuel subsidy palliatives measures, National Safety Net Programme, the federal government stated in April that it will secure a $800 million World Bank loan to be distributed to around 50 million vulnerable Nigerians, or 10 million households. Furthermore, the president’s request was detailed in a letter that Senate President Ahmad Lawan read aloud at Wednesday’s plenary session. On May 29, Mr. Buhari will cede control to Bola Tinubu, the president-elect.
Zainab Ahmed, the minister of finance and national planning, stated in April that the disbursement is in anticipation of the planned subsidy removal in June. In contrast, the Debt Management Office recently reported that Nigeria’s debt profile as of December 31 increased to N46.25 trillion ($103.1 billion). When describing the breakdown, the DMO noted “that there was an increase of over N7 trillion from what the country owned in 2021.”
The other side’s perspective
The Director General of the Budget Office, Mr. Ben Akabueze, raised the issue of the nation’s massive debt earlier on Wednesday at the Induction of Members Elected of the National Assembly, which was hosted by the National Assembly and the National Institute of Legislative and Democratic Studies. He claimed that the debt “had become unsustainable.” He bemoaned “the lack of an organic budget law that failed to trigger the alarm when the debt service of the country hit 30 per cent.
“Once a country’s debt service ratio exceeds 30 percent, that country is in trouble and we are already pushing toward 100 percent and that tells you how much trouble we are in.” He explained that the expectation is that the funded activities would yield some dividends from which repayment can be made.
“Unfortunately nobody appears to be interested in how these mounting debts are going to be paid. I’m afraid that we are already at the point where it is practically impossible for us to repay our debts which has accumulated to over N77 trillion. It’s going to take some miracle to get us out of the crisis we are already in. I don’t think we should be compounding our situation by getting into more debts, especially for non-productive activities,” he added.
Dr. Muda Yusuf, director of the Centre for the Promotion of Private Enterprises (CPPE), responded to the request by saying that he thinks “any conversation or engagement on subsidy removal and palliatives are better left for the incoming administration, adding that the country has had such subsidy related palliatives in the past and none involved borrowing.” According to him, the practice had been that palliatives were funded from the savings from subsidy removal, which makes the current proposition rather strange. “Besides, there are policy dimensions to the delivery of palliatives. Government needs to explore fiscal and monetary policy options to incentivise investment in sectors that could mitigate the pains of subsidy removal. These include investment in refineries, pipelines, petrochemicals, petroleum products marketing, fertiliser plants, food production and processing etc. There should also be incentives to facilitate investment in power sector, use of auto gas, etc,” he continued.
The head of the Manufacturers Association of Nigeria (MAN), Apapa branch, Frank Onyebu, concurred, saying “it was shocking to say the least for the government to seek further loans to fund social programs.”As he put it, “One would expect that what the government should be doing right now is preparing for handover.” The purpose of discussing new appropriations at this time, according to Onyebu, eludes him. “Assuming the Senate approves this new loan and I won’t be surprised if that happens going by antecedents of this senate, who is going to implement it? This administration or the next?” He questioned the Federal Government rationale for fresh borrowing to fund social programs and not production related ventures, saying it really beats ones imagination.“I don’t even want to go into allegations of impropriety in previous social programs. It just doesn’t make sense to borrow to fund such programs. Do they realise the need to repay these debts? How do they intend to repay such debts? . He insisted, “Normally you borrow to fund productive activities.”
Meanwhile, the Nigeria Agenda 2050 (NA 2050), which aspires to ensure that the country achieves a Per Capita GDP of $33,328 per year, ranking her among the top middle-income economies in the world by 2050, was introduced by the present administration at the beginning of May. After experiencing negative growth rates in the second and third quarters of 2020, the economy of the nation has grown for seven straight quarters.” The GDP grew by 3.54% (year-on-year) in real terms in the 2nd Quarter of 2022. This growth rate represents a sustained positive economic performance, especially for the Non-Oil GDP which fell by 4.77% in Q2 2022 against Oil GDP that grew by -11.77%. In addition, with Nigeria’s population growth continuing to outpace poverty reduction, the number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025. The new Nigerian government must look for alternative methods of generating cash for the benefit of the people.
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