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August 10, (THEWILL) — The Senate has approved President Bola Tinubu’s request for an external borrowing plan of over $21 billion for the 2025–2026 fiscal cycle.
This was a sequel to the consideration and adoption of a report of the Senate Committee on Local and Foreign Debt, presented by its Chairman, Senator Aliyu Wamakko (Sokoto North).
The comprehensive borrowing package includes $21.19bn in direct foreign loans, €4bn, ¥15bn, a $65m grant and domestic borrowing through government bonds. Also included was a provision to raise up to $2 billion through a foreign-currency-denominated instrument in the domestic market.
Nigeria is grappling with a concerning combination of rising public debt and increasing poverty. This situation is characterised by a growing debt burden, particularly in the form of domestic and external debt, which is straining the nation’s finances and potentially hindering long-term development. The situation is further complicated by dwindling revenue, which limits the government’s ability to invest in crucial sectors and address poverty effectively.
Nigeria’s debt stock has increased considerably over the past five years—a trend generally connected with expansion in the size of government expenditures. There is often danger associated with repayment and servicing of these debts, which often result in diversion of productive funds towards debt repayments, thereby limiting the government’s ability to provide basic infrastructures that benefit the poor.
Efficient use of debt could lead to improved economic growth and a better standard of living for the populace. However, resources from debt have not been managed effectively in Nigeria to generate sufficient resources to service and repay such debt at maturity. Consequently, Nigeria has to contend with mounting public debt and debt service payments amid deteriorating growth and rising poverty levels.
Nigeria’s national debt poses significant risks to its economy, potentially hindering growth and development. High debt levels can lead to increased debt servicing costs, diverting government revenue from essential investments in infrastructure, education and healthcare.
This can, in turn, stifle economic growth, increase poverty, and limit the government’s ability to respond to economic shocks. A large portion of Nigeria’s revenue is used to pay off debt, leaving less for crucial public services and investments.
Nigeria’s debt can lead to a cycle where the government borrows more to service existing debt, exacerbating the problem. High debt levels restrict the government’s ability to invest in infrastructure, education, and healthcare, which are essential for long-term economic development. Nigeria’s debt has led to a decline in the quality of life for citizens and hindered economic growth.
Nigeria’s excessive debt has discouraged both domestic and foreign investment, as investors become wary of lending to a highly indebted nation. Nigeria’s debt has led to slower economic growth, increased unemployment, and decreased competitiveness.
If Nigeria’s debt becomes unsustainable, it could lead to a debt crisis, where the country struggles to meet its debt obligations. This could trigger a financial crisis and further damage the economy.
Reduced government spending on social services due to debt servicing can lead to increased poverty, poor healthcare, and inadequate education, impacting human capital development. High debt levels make Nigeria more vulnerable to economic shocks, such as fluctuations in global oil prices or changes in interest rates. This is particularly concerning for Nigeria, which relies heavily on oil revenue.
High levels of domestic debt can “crowd out” private sector investment by increasing interest rates and making it more expensive for businesses to borrow.
In conclusion, while borrowing can be a tool for development, Nigeria’s current debt situation poses significant risks to its economic stability and future growth. Effective debt management, diversification of revenue sources, and investment in productive sectors are crucial to mitigating these dangers and ensuring sustainable economic development.
I am worried that the debt service-to-revenue ratio, which peaked at over 90 percent in 2023, is presently under pressure. President Tinubu is embarking on debt diplomacy, which is no longer relevant to most Nigerians; it is a serious threat to Nigeria’s national security because of our experience with the IMF/World Bank Structural Adjustment Programme.
***Written by Inwalomhe Donald.
Donald is a financial analyst.
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