Imagine a country struggling with an ever-increasing debt, where the burden of servicing that debt looms large over its future.
A debtor is often said to be a slave of the lender. This is especially so when government officials squander the loan and not put to a good use.
For many developing nations, including Nigeria, the cost of borrowing has become a critical issue.
As the country faces its financial challenges, the government is forced to borrow more, pushing its debt higher.
But how much debt is too much? And what does it mean for the average citizen when a nation’s total debt climbs to staggering figures?
These are questions Nigerians are now asking, as their national debt reaches unprecedented levels.
Tinubu Requests For Loan Approval
Indeed, Nigeria’s debt story is now entering a new chapter.
President Bola Tinubu has requested approval from the National Assembly for an additional ₦1.77 trillion ($2.2bn) in external borrowing. He says it will help fund the 2024 budget.
The president’s proposal is part of a broader effort to address a projected ₦9.17 trillion budget deficit. This deficit has led to a sharp rise in borrowing.
This request came in a letter read during a plenary session on Tuesday.
President Tinubu explained that the borrowing was in alignment with the Debt Management Office (DMO) Act of 2003.
Also, he said it had already been approved by the Federal Executive Council.
Nigeria’ Debt Profile
This borrowing, along with others planned for 2024, will push Nigeria’s total debt to a record high of ₦136 trillion.
The total borrowing for 2024 is set to reach ₦7.83 trillion, with ₦6.06 trillion allocated for domestic borrowing and ₦1.77 trillion for external borrowing.
The president outlined three options to raise the required funds: Eurobonds, Sovereign Sukuk, and Bridge Finance/Syndicated Loans.
Additionally, the government is considering the issuance of a $500 million Sovereign Sukuk. this is supported by credit enhancement from the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC).
“The debut issuance of Sovereign Sukuk worth $500 million is being considered,” the president’s letter explained, marking an important move towards diversifying Nigeria’s borrowing options.
Since Tinubu assumed office in May 2023, Nigeria’s total debt has increased dramatically, with new borrowing of ₦46.7 trillion by June 2024.
Debt servicing costs have also surged, reaching ₦6.04 trillion in the first half of 2024, a 68.8% rise from the previous year.
With the debt-to-GDP ratio crossing 50%, Nigeria’s debt servicing is projected to exceed both recurrent and capital expenditure by 2025.
Nigeria’s Debt Repayment
The Central Bank of Nigeria has stated that “debt repayment now consumes a significant portion of the government’s financial resources,” which places immense pressure on the economy.
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The funds raised from these borrowings will support essential sectors like power, transport, agriculture, and defence.
Also, it will help stabilise the Naira by boosting external reserves.
“The proceeds will also boost external reserves through deposit into the Central Bank of Nigeria’s account, thereby stabilising the Naira,” said the president.
Tinubu has also submitted the 2025-2027 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) to the National Assembly, urging quick action.
“It is imperative to seek the National Assembly’s expeditious legislative action on this submission,” he added.
In addition, Tinubu has proposed the National Social Investment Programme Agency Establishment Amendment Bill 2024.
This seeks to make the National Social Register the primary tool for targeting beneficiaries of government welfare programmes.
“This will ensure our social welfare programmes are data-driven and implementation processes are transparent, targeted, dynamic and effective in delivering social protection benefits to vulnerable Nigerians,” he explained.
Experts’ Reactions On Nigeria’s Debt
Meanwhile, the World Bank has raised concerns about the rising costs of debt servicing.
However, some Nigerian officials, like Senator Jimoh Ibrahim, argue that more borrowing is necessary for the country’s infrastructure development.
“Nigeria needs to borrow more to develop infrastructure,” said Ibrahim, pointing out that the current borrowing is too small to make a significant impact on the economy.
However, experts warn that Nigeria’s growing debt burden could have long-term economic consequences.
For instance, the World Bank’s Chief Economist, Indermit Gill, cautioned: “The combination of record-level debt and soaring interest rates have set many developing nations on a precarious path”.
