Economic experts and stakeholders have sharply criticized President Bola Ahmed Tinubu’s recent proposal to the National Assembly for approval of a new external Loan of $2.2 billion, citing the possible consequences on Nigeria’s already strained budgetary health. According to the Appropriation Act, the proposed borrowing is meant to Finance important Infrastructure projects and cover Nigeria’s ₦9.17 trillion fiscal imbalance in the 2024 budget. The Federal Executive Council (FEC) has already approved the plan, which seeks to raise the fund using Eurobonds or other external instruments.
The Committee on Local and Foreign Debts was tasked with accelerating the assessment process after the borrowing plan, which was backed by specific provisions, was sent to Senate committees. The $2.2 billion loan is a component of a larger fiscal plan to support Nigeria’s economy, which has been struggling with declining oil earnings, inflation, and unstable foreign exchange. While the government claims that these expenditures would pay off in the long run, critics are doubting whether taking on more debt in the face of diminishing Revenue is sustainable.
Public debt stock stood at ₦121 trillion in Q1 2024.
This recent proposal follows a series of huge borrowings in the last few years. Nigeria’s debt profile increased under President Muhammadu Buhari’s leadership, with external loans totaling $41 billion by the end of 2022. During the COVID-19 pandemic, Buhari’s administration obtained loans to repair infrastructural deficiencies, finance the budget, and support recovery initiatives. Following this path, the Tinubu administration also requested an extra $1.5 billion for social initiatives and economic reforms from the World Bank early this year.
Nigeria’s Senate swiftly granted President Bola Tinubu’s request in June 2023 to borrow $800 million from the World Bank to help mitigate the impact of high prices following the removal of a popular but expensive fuel subsidy. In November of the same year, President Tinubu also requested that the Senate approve $7.86 billion in fresh debt as part of a 2022–24 external borrowing plan to fund security, infrastructure, health, and education. The country’s public debt stock, which includes both domestic and foreign debt, increased to ₦121.67 trillion (US$91.46 billion) in Q1 2024 from ₦97.34 trillion (US$108.23 billion) in Q4 2023.
Revenue-to-debt service ratio is under deep strain.
Base on quarter-over-quarter, this shows a growth rate of 24.99 percent. In the first quarter of 2024, the entire amount of External Debt was ₦56.02 trillion (US$42.12 billion), while the total amount of domestic debt was ₦65.65 trillion (US$49.35 billion). A crucial indicator of fiscal health, Nigeria’s revenue-to-debt service ratio, is under a lot of strain due to its growing debt. More than 90% of the nation’s income was already going into debt repayment as of 2023. This unsustainable tendency will be exacerbated by the $2.2 billion increase in the national debt, which will even reduce funding for spending on development.
Declining government earnings, especially from oil, the nation’s primary source of income, further aggravate the situation. While the proposed borrowing could provide some short-term respite by giving the government the fund needed to fund important infrastructure projects, the long-term consequences are much more worrisome. Nigeria runs the risk of falling into a debt trap, where it borrows money only to pay off its previous debt, if it keeps borrowing without increasing its revenue creation. This could result in a situation where the government’s massive debt obligations underfund vital public services like healthcare and education.
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Additionally, experts have noted that Nigeria’s economic sovereignty is threatened by its reliance on foreign borrowing. Prioritizing debt repayment over development expenditures puts the nation at risk of losing out on vital investments in social infrastructure and human capital. Thus, Economic Development may be slowed, Unemployment may rise, and inequality may deepen. Analysts urged Tinubu’s administration to boost public expenditure efficiency, diversify revenue sources, and prioritize fiscal restraint in order to prevent these severe outcomes. Without these steps, Nigeria’s debt load could probably become untenable, endangering the nation’s Economic Stability and future growth.