Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited

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The dangers in Buhari's $30bn external borrowing proposal 07 Nov 2016

Should Nigerians lose sleep over the proposal by President Muhammadu Buhari to raise approximately $30 billion through external borrowing over the period of 2016 to 2018? The first impulse is to answer “No.” Upon further consideration, however, the answer changes to “Yes.”
The impulsive “No” would emanate from a good acquaintance with the dismal record of the administration so far in fiscal management. Even more broadly, just about everything the current government has promised to do, it has failed to achieve.

For example, while Buhari has considerably curtailed the terror of Boko Haram in the Northeast, many other killing fields have since emerged around the country. There have been genocidal attacks on Shiite Moslems in Kaduna, and rampaging killings by Fulani herdsmen in the Middle Belt and Southeast. Militant attacks on oil installation in the Niger Delta have plunged the country into economic insecurity. Therefore, any sense that the government has delivered on one of its cardinal promises – security – is open to question.

The more relevant, abject failure of the 17-month-old government is with regard to fiscal management. The 2016 budget is unprecedented, in total size (N6.06 trillion), allocation to capital expenditure (N1.59 trillion), and deficit financing (N2.2 trillion). But all indications now suggest the budget will also be unprecedented in implementation failure. According to a statement released late October by the Finance Minister, Kemi Adeosun, and Minister for Budget and National Planning, Senator Udoma Udo Udoma, only N2.5 trillion has been released for implementation of this year's budget.

Policy pundits are well-acquainted with the routine inability of the government to deliver. Therefore, Nigerians who are worried, that the newly unfolded external borrowing plan would astronomically increase public debt over the next two years, can be rest assured it won't happen. Going by what we already know with the administration that maintains a wide gap between promise and action, only a fraction of the loans would be realised.

A $4.5 billion external financing was supposed to kick-start the borrowing plan this year. That was the amount required in the 2016 budget to part-finance the deficit – which, cleverly, was linked to infrastructure investment. However, not one cent has been raised in external financing at the end of October.

As one would expect, however, the lack of success with the external borrowing plan for the 2016 budget has not been because of lack of efforts, even if belated, or for other inadequacies. One then imagines that some of the efforts are set to bear some fruits eventually. What the government then does is revamp its accustomed grand delusion of larger-than-life plans. That was how we got the N6.06 trillion budget in the first place.

The fiscal authorities have given less than composed performances. With regard to raising external financing for the year, the government has vacillated from outright project finance from China, raising so-called panda bond, to issuing a $1 billion Eurobond before the end of the year, in addition to lending by a coterie of international development finance providers, including the World Bank, African Development Bank, China Exim Bank, Japanese International Cooperation Agency, Islamic Development Bank and others. The very sense that Nigeria welcomes all sovereign lenders, except the International Monetary Fund (IMF), suggests lack of focus with the borrowing proposal.

Fiscal Chaos

The fact that the government might not be able to deliver on its latest external borrowing proposal should cause worry. If the external borrowing plan falters – as it is anticipated to – the country will have to grapple with a lengthy period of chaotic economic management, with dire consequences for the quality of life of Nigerian suffering masses. Yet, the failure of the 2016 budget cannot be limited to inability to raise the deficit financing. It is a total failure of budgeting and implementation.

Indeed, Nigerians should be wary of the obsession of this government with big budgetary plans. The 2016 budget was even supposed to be “somewhere between N7 trillion and N8 trillion”, according to Vice President Yemi Osinbajo, until, late in the day, when it was reduced to N6 trillion. In spite of the very low rate of implementation of the budget, the government has mooted further expansionary budget of N7 trillion for 2017.

Political Motives

But then, should we be worried that the government might actually raise the $30 billion? Nigeria is nowhere near over-borrowed. The country's public debt stock was 16.8 percent of GDP as at June 2016. If the $30 billion were raised, and government were true to its shift from domestic borrowing, then Nigeria's debt-to-GDP ratio would rise to not more than 25 percent at the end of 2018. That is well below the ratio for a number of Nigeria's frontier market peers.

But that is all the comfort we have. Beginning with the analysis of the political milieu in which the external financing is being sort, Nigerians have many reasons to kick against the plan.

The All Progressives Congress (APC) government has been trying to validate itself and consign the performance record of the People's Democratic Party (PDP) – which governed between 1999 and 2015 – to the rubbish dumb of Nigeria's misgovernance. Therefore, it conceives of its plans in relation to the performances of the past PDP governments. But public economic policy should rather be based on achievable goals and not political gimmicks.

The gimmickry can be very costly, and sinister intentions may not be separable from APC's big fiscal plans. Public disclosure on how the party funded a lavish campaign that brought President Buhari to office has yet to be made. In Nigeria's “lutocracy”, campaign funding is an investment that must be recouped. But then the price of oil was spiralling downward when the new government came into place. Even now, oil prices are still quite low at about $50 a barrel. Therefore, the dollar debt could as well replace petrol dollar that is usually misappropriated by government officials.

This point is made irrespective of President Buhari's anticorruption posturing, and because he has used cabinet positions to reward some of his key campaign financiers. It is customary in Nigerian governance for such appointees to use their positions to repay themselves. More ominous, members of the House of Representatives, which has APC majority, have given funding of their “constituency projects” in the 2016 budget as precondition for approving the new external borrowing plan. Such projects often don't see the light of day.

The politics of the new debt financing plan is forewarning. The project allocation has a geographical spread of power and rail projects that suggests “federal character” as the key determining factor than project viability or bankability. Nevertheless, the projects spread is likely to generate geopolitical acrimony, owing to the meagre coverage of the eastern parts of the country.

At the time President Buhari forwarded the plan to the National Assembly, he was also seeking virement on N180 billion in the 2016 budget – i.e. pre-approval to divert budgetary funds to where he pleases. This verges toward authoritarianism, and it would set a precedence for the next fiscal years, more than any virtue that is touted for virement.

Inadequate Disclosure

Going by the predilection of the government for incomplete public disclosure, we may not have enough information about the external loans. The Thursday, 27th October, 2016 online edition of ThisDay newspaper, claimed exclusive access to the breakdown of the projects earmarked for the loans. The highest amount, $6 billion, was assigned to “Others”. $4.5 billion Eurobond was also listed as one of the projects. This might as well be an erroneous scoop by ThisDay, but that is what happens in a regime of fiscal secrecy.

Looming Fiscal Disaster

Whether or not the projects are delivered, the current external loans proposal will significantly alter government's balance sheet, and see public debt balloon to unprecedented levels in Nigeria. As at June 2016, domestic public debt amounted to N13.1 trillion, while total external loan was $11.3 billion. The latest borrowing plan will raise total external debt to $41 billion. The combined dollar value of public debt would rise to $84 billion at the official exchange rate of N305 to $1.

The country already has a high debt-service-to-government-revenue ratio. It stood at 40 percent with the 2016 budget. With additional external borrowing of $30 billion over the next two years, debt service would likely rise above 50 percent of government revenue in the foreseeable future. That will raise the risk profile of foreign investment in Nigeria. Ghana and Mozambique are two of Sub Saharan African countries already in this territory, and where external debt is now an albatross.

President Buhari's external borrowing plan risks pushing the country into a debt trap. We have been there before, and have only harrowing tales to tell. Several African countries got debt relief in the early- to mid-2000s. Nigeria exited its multilateral foreign debts in 2005 and 2006. But fiscal imprudence has ignited another round of build-up of external debt in Africa. At a time the “Africa Rising” rhetoric is becoming more questionable, Nigeria's rising external borrowing will help insert “debt” to have a more plausible narrative of “Africa Debt Rising.” That would be an uninvestable theme for the continent as well as for Nigeria.


The APC government needs reality check. Coming up with big fiscal plans that soon come down crashing is not good for the economy. As I noted in my October article, Nigeria needs a credible fiscal plan that is implementable. Only the government will remain impressed with its grandiose promises and plans. Nigeria needs a smart, nimble and scalable fiscal policy that delivers measurable results.

Also, I had written recently about “Nigeria's misplaced priority on infrastructure investment.” The government is erroneously assigning to infrastructure investment the multiplier effects the economy is far from well-placed to deliver. At the risk of repetition, the capital-to-local-job ratio of these projects is likely to be low. Infrastructure investment like rail, in Nigeria, is tantamount to encouraging capital flight. We have to procure the technologies, materials and expertise from abroad. This will not relieve the pressure on the exchange rate, even with dollar debt inflow.

It is obvious the government is carrying over to 2017 a larger proportion of its capital expenditures for 2016. It, therefore, makes sense that the $4.5 billion external financing for the 2016 budget should be the substantial borrowing for next year.

If concern about the recession running longer is the reason for the $30 billion borrowing plan, that is more of a paranoia. The government needs little more than ensure recovery of oil production throughout next year, by brokering a lasting truce with the Niger Delta militants. Ironically, the government is embarking on an arms race with substantial budget being earmarked for military hardware. This is neither needed in combating Boko Haram – intelligence gathering and de-radicalisation as well as provision of relief and resettlement is what is needed. Nor is high-scale arming required to achieve peace in the Niger Delta.

In the main, the APC government is steeped in conventional wisdom. But what the country or the economy needs is a big-hearted president, foresighted policymakers, with both working to galvanise Nigerians to contribute to the development of the country. Yet what we have in Abuja are divisiveness and policymakers who appear out of their depths.