The Budget Office of the Federation has said Nigeria now has a “limited borrowing space” due to its poor debt-to-revenue ratio, stressing that “trouble” looms for the country if it exceeds its limits.
The office issued the warning as the outgoing President, Major General Muhammadu Buhari (retd.), wrote to the National Assembly seeking approval for a fresh $800m loan from the World Bank.
Director-General of the Budget Office, Ben Akabueze, while addressing members-elect of the 10th National Assembly at their week-long induction ceremony in Abuja on Wednesday, pointed out that while Nigeria remains healthy with its debt-to-GDP ratio, the country is not with its debt-to-revenue ratio.
Akabueze was speaking to the newly elected and returning members of the National Assembly, which is responsible for the consideration, amendment and passage of annual budgets of the Federal Government as well as economy bills like the Finance Bill.
He said, “You may have heard that we have one of the lowest Gross Domestic Products-to-debt ratios in the world. While the size of the FG budget for 2023 created some excitement, the aggregate budget of all the governments in the country amounted to about N30tn. That is less than 15 per cent in terms of ratio to GDP.
“Even on the African continent, the ratio of spending is about 20 per cent. South Africa is about 30 per cent; Morocco is about 40 per cent. And at 15 per cent, that is too small for our needs. That is why there is fierce competition for the limited resources.
“That can determine how much we can relatively borrow. We now have very limited borrowing space; not because our debt to GDP is high, but because our revenue is too small to sustain the size of our debt. That explains our high debt service ratio. Once a country’s debt service ratio exceeds 30 per cent, that country is in trouble and we are pushing towards 100 per cent, and that tells you how much trouble we are in.
“We have limited space to borrow. When you take how much you can generate in terms of revenue and what you can reasonably borrow, that establishes the size of the budget. The next thing would be to pay attention to the government’s priority regarding what project gets what.”
Akabueze also stated that Nigeria should not be classified as an oil-rich economy.
“We are not even an oil-rich economy. To classify oil-rich economies, you talk of countries like Saudi Arabia where there are 34 million of them and pump 10 million barrels of crude per day, or Kuwait where there are 3 million of them and pump 3 million barrels per day,” he said
The Budget Office boss added that while Nigeria has a population of over 200 million, “we are currently pumping about 1.9 million barrels per day.”
He stressed, “So, we are not a rich economy and must resist the temptation we are an oil-rich economy. Let me make it clear that we are potentially rich countries, but we are not.”
About the same time Akabuaeze was addressing the National Assembly members-elect, the President of the Senate, Ahmad Lawan, read out Buhari’s request to lawmakers on the floor of the Senate.
$800m for social security
The President partly wrote, “Please note that the Federal Executive Council approved an additional loan facility to the tune of $800 million to be secured from the World Bank, for the National Social Safety Net Programme and the need to request for your consideration and approval to ensure early implementation.
“The Senate may wish to note that the programme is intended to expand coverage of shock responsive safety net support among the poor and vulnerable Nigerians. This will assist them in coping with the costs of meeting basic needs.
“You may wish to note that, the Federal Government of Nigeria under the conditional cash transfer window of the programme will transfer the sum of N5,000 per month to 10.2 million poor and low-income households for a period of six months, with a multiplier effect on about 60 million individuals. In order to guarantee the credibility of the process, digital transfers will be made directly to beneficiaries’ accounts and mobile wallets.
“The NASSP being a social intervention programme will stimulate activities in the informal sector, improve nutrition, health, education and human capital development of beneficiary households.”
Buhari added, “Given the above, I wish to invite the Senate to kindly approve an additional loan facility to the tune of USD8OO million to be secured from the World Bank for the National Social Safety Net Programme,” expressing hope that the request will “receive expeditious consideration by the Senate.”
The PUNCH had reported on May 7, 2023, that Nigeria’s borrowing from the World Bank had reached $14.34bn as of March 31, 2023.
This was an increase from the $13.93bn debt recorded by the Debt Management Office as of December 31, 2022.
This means that fresh disbursements on approved loans added $410m to Nigeria’s debt from the World Bank in the first quarter of 2023.
The IBRD lends to governments of middle-income and creditworthy low-income countries, while the IDA provides concessionary loans – called credits – and grants to governments of the poorest countries.
The data obtained from the Washington-based bank showed that Nigeria had a debt of $488.66m from IBRD and $13.85bn from IDA as of March 31, 2023.
The PUNCH had observed that the first World Bank loan was acquired in the fiscal year of 1947, according to data from the World Bank.
Since that period, Nigeria has acquired a total of $7.49bn from IBRD and $26.17bn from IDA.
This means that a total of $33.66bn has been borrowed from the World Bank since 1947.
It was also observed that about $7.29bn had been repaid on the loans, with $7.86bn yet to be disbursed by the bank.