President Muhammadu Buhari may limit Nigeria’s next government from borrowing any further if he succeeds in convincing the Nigerian Senate to convert an unpaid N22.7 trillion ($50 billion) overdraft from the Central Bank of Nigeria (CBN) to public debt.
President Buhari’s push is despite concerns surrounding the legality of the borrowing.
Nairametrics gathered that the president asked the Senate to approve his plan to convert 22.7 trillion naira into bonds that will be repayable over decades.
The concern: The move would immediately boost the country’s official debt load by more than half, propelling Nigeria’s debt-to-GDP ratio toward the 40% limit set by the administration. Such borrowing has exploded 30-fold under President Buhari. If the Senate accedes to Buhari’s proposal, it would add about 50% to the official public debt.
With such a scenario, and if the federal government maintains its 40 debt to GDP ratio, any incoming government would be left with no choice but to generate all of its income internally, which would imply increasing taxes.
Experts’ perspective: Commenting on the likely scenario, Moses Igbrude, the national coordinator-elect of the Independent Shareholders Association of Nigeria, said the Buhari administration is setting a debt trap for the incoming administration.
- Igbrude said if well-managed, Nigeria should have no problem with debt, if the debt were used for production, but lamented that the country is being enmeshed in debt servicing with no way out because the federal government has been borrowing for consumption over the years, which is not sustainable.
- However, the CEO of Anthill Concepts Limited, Dr Emeka Okengwu, said the 40% limit set by the federal government is not sacrosanct. He said any other government can set a new limit for borrowing. He added that converting the Ways and Means withdrawal from the CBN to long-term debt would be an assurance from the federal government of its commitment to pay the debt.
- Frank Mbata, an economist with Cashlinks Trust, said Nigeria’s debt stock is becoming grossly unsustainable. He noted that if the country cannot service an N42 trillion debt, it would be much more difficult to service an N77 trillion debt. He lamented that the current generation of leaders is piling up a huge liability for the unborn generation.
- Mbata stated that Nigeria will have to take the hard decision of cutting the cost of running the government. He particularly cited the cost of running a bloated civil service, as well as the ‘jumbo cost’ of maintaining the National Assembly.
