How Nigeria borrowed N225trn in 20 years

Nigeria has borrowed N225.93 trillion in the last 20 years, which is nearly double the N114.464trn it earned within the same period, an official publication has revealed. Experts who spoke to Daily Trust described the situation as worrisome for a largely oil-dependent economy. According to the 2021 Statistics Bulletin on Public Finance of the Central […]

Nigeria has borrowed N225.93 trillion in the last 20 years, which is nearly double the N114.464trn it earned within the same period, an official publication has revealed. Experts who spoke to Daily Trust described the situation as worrisome for a largely oil-dependent economy.

According to the 2021 Statistics Bulletin on Public Finance of the Central Bank of Nigeria (CBN), published May 2022 and obtained by our reporter, the revenues and debts were to the federal government, the 36 state governments and the 774 local government areas, from 2001 to 2021.

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How govts’ shared N114trn earnings
Our analysis of CBN’s financial record showed that from the N114trn, the federal government got N50.020trn, the states got N31.147trn and local government areas got N23.625trn.
However, the balance of N9.670trn was freed up as a 13 per cent derivation fund, which is for the oil-producing states – Delta, Akwa Ibom, Bayelsa, Rivers, Edo, Ondo, Imo, Lagos and Abia – as enshrined in section 162 sub-section 2 of the Nigerian constitution to assist their oil-producing communities in tackling environmental pollution and degradation. Reports show that Akwa Ibom, Rivers, Bayelsa and Delta States produce 95% of the oil in Nigeria.
Further analysis showed that the three tiers of government got the highest revenue of N8.515trn in 2013 under former President Goodluck Jonathan when oil sold at an average $98 a barrel; and N8trn in 2018 under President Muhammadu Buhari, when the average oil price was $71.34 per barrel. The average yearly fund has been around N5trn, with N7.751trn coming in as at December 2021.

Nigeria’s N225trn debt in 2 decades
However, the three tiers of government accumulated a combined debt portfolio of N225.943trn, nearly doubling their revenues in the two decades. These debts comprise N142.413trn domestic borrowing and N83.529trn external borrowing.
On the N225trn cumulative domestic debt, the largest chunk of borrowing came through the Federal Government of Nigeria’s (FGN) bonds with N92.925trn debt since its start in 2003. Next were treasury bills of N38.458trn. The governments also raised N6.526trn from treasury bonds; got N2.861trn from promissory notes.
With a declining crude oil price starting from 2014, petrol subsidy and a higher debt profile, the federal government began to look for more debt instruments. It eventually initiated the Sukuk, green bond and saving bond to raise revenue by way of domestic debts.
Daily Trust analysis further illustrates this as the government raised N1.475trn from FGN Sukuk introduced in 2017. Debt from the FGN green bond was N98.45billion and debt from the FGN savings bond was N59.34bn since 2017 when the two funding instruments were first issued.
The federation also tried its hands on N9.76bn Development Stocks but paid it off in 2010, and did not continue with the model.
Also, from the analysis, domestic borrowing rose from N1trn in 2019 and reached N19.242trn last year.
While the federation pays off part of the debt every year, the introduction of newer debt instruments in 2017 – the Sukuk, green and savings bonds – raised the national domestic debt profile. For example, the debt profile grew from N8.837trn to N11.058trn in 2016 due to higher issuance of treasury bills, FGN bonds and treasury bonds.
From 2017, when the Sukuk, green and savings bonds came, the figure had risen to N12.589trn with oil price further plunging to $54/bl, being the main revenue source. The debt profile further rose to N19.242trn in 2021, which is the current unpaid local debt.
For the external debt profile, Nigeria got the highest debt of N36.935trn from multilateral donors, such as the World Bank and the African Development Bank (AfDB). It also raised N20.189trn from Euro bonds, a relatively high-interest bond from the European Union (EU). The Paris Club gave N15.659trn loan from 2001 to 2005.
The federation also got a N7.837trn bilateral loan from the likes of China’s Exim Bank, Japan’s JICA and the AFD of France. From London, another N994bn loan came to Nigeria; foreign promissory notes brought N672bn, Diaspora bonds attracted N519.9bn debt, while there were other debts of N722.5bn.
The analysis further showed that the external loan grew from N3.176trn to N4.890trn in 2004 before a decline began in 2005 with N2.695trn. By 2006, Nigeria was left with a paltry N451.46bn foreign loan after the Paris Club and London loans were written off, including their loan to Nigeria accumulated before 2001. The foreign debt profile dropped to N438.89bn in 2007, the best year for Nigeria as a relatively low-debt country.
But from 2008, the loan began to grow again to N523.25bn and rose to N590.44bn in 2009 due to a loan increase from the World Bank. By 2012, Nigeria’s external debt had more than doubled to N1.026trn in just five years.
The debt reached N2.111trn in 2015 and rose to N3,478trn the next year. Since then, the debt has been jumping on over N2trn interval as it reached N5,787trn in 2017 to N7,759trn in 2018, rising to N9trn in 2019 and further leaping to N12.705trn in 2020 before reaching N15.855trn last year.

Borrowing soars, FG struggles with salaries
Just mid-June, an erstwhile acting Accountant General of the Federation, Mr Anamekwe Nwabuoku, disclosed that Nigeria was borrowing to pay salaries, coming at a time when the crude oil price has risen above $120 per barrel.
“We have to borrow to augment our salaries. We are in a very difficult time. Government income is highly challenged,” said Nwabuoku.
A day after, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, acknowledged that although crude oil prices had risen far above expectations, Nigeria was yet to reap the gains of higher revenue due to the heavy petrol subsidy budget.
“This Premium Motor Spirit (PMS) subsidy is costing us an additional N4trn than was originally planned. Already, we have borrowed significantly and are struggling with debt servicing,” the minister said.
According to a recent Debt Management Office (DMO) report, Nigeria spent N896.7bn on domestic and foreign debt servicing in the first quarter of 2022. In the same quarter of last year, the country spent N1.02trn to service these debts.
But some economists have their fingers pointed at the government for not doing enough to curb unnecessary spending. A lead economic consultant to the Economic Community of West African States (ECOWAS), Professor Ken Ife, blamed the Nigerian National Petroleum Company (NNPC) Limited for raising the debt profile with petrol subsidy.
He said, “The NNPC is asking the federal government to borrow N4trn to service subsidies. Where will they get that money? Don’t forget that this is in addition to recurrent expenditure consisting of salaries and pensions.”
According to an economist at SPM Professionals, Paul Alaje, borrowing to consume, especially for subsidies and salary payments, is worrisome as corrupt practices are rising in managing government revenues among public officials.
Alaje said, “The question again is, should we continue to borrow to finance a budget that does not impact the economy? The answer is no.”
Also speaking on the alarming rate of borrowing, a senior lecturer of Economics at the Lagos Business School, Dr Bongo Adi, pitied the incoming government over a looming economic crisis.
He said, “If care is not taken, the next government has the fertile land to fail woefully because the looming economic crisis is real and Nigeria has very little headroom.
“This is why the choice of leadership is very important at this time. And we cannot afford to get it wrong because both local and global macro-odds are against prosperity, even as the stakes are high for Nigeria to get things right.”
While calling for caution on borrowing, Adi said, “If it is to use it (borrowing) as a political compensation system and cronyism, then it is nothing.”
Stressing the need to monitor the borrowed funds to see their performance, he said the Central Bank of Nigeria’s (CBN) Anchor Borrowers Programme, for instance, if properly monitored, “You will see that in fact, it is a humongous loss.”
This story was produced under Dataphyte’s 2022 Media Fellowship.

 

By Simon E. Sunday