The Growing Debt Dilemma in Nigeria
Nigeria’s approach to debt has evolved from a necessary evil into a symbol of progress and even a source of pride for the government. This shift is largely attributed to the policies initiated under the leadership of Kemi Adeosun, who was the first Minister of Finance under the late President Muhammadu Buhari. She famously stated that Nigeria would have to borrow its way out of poverty, a declaration that has since led to a continuous increase in both borrowing and poverty levels.
Despite the growing concerns about the nation’s debt burden, which has multiplied significantly under this administration, the Federal Government continues to show an insatiable appetite for accumulating more debt. This trend raises serious questions about the future of the country and the well-being of its citizens, as it appears that the government is mortgaging the future of the younger generation for short-term gains.
Recent Borrowing Activities
Last week, the Nigerian government floated Euro bonds or Euro loans, which are foreign-denominated credits, further deepening the country’s entanglement in a debt trap. While preparations for this loan were underway, the President hinted at the need to borrow over N1tn in the domestic market to implement the 2025 budget. For the remaining two months of the year? Every month, federal government bonds in billions of naira are sold to the public, just as treasury bills are sold monthly. Both are credits to the government. In December 2024 alone, Nigeria issued US$1.7bn Eurobond, which was oversubscribed.
SUKUK bonds, another form of local loan, are also sold periodically to raise funds. These financial instruments are part of a broader strategy to secure the necessary capital for various government initiatives.
Lessons from the Past
The Buhari government did not adequately prepare the ground for continuous borrowing, leading to a situation where external borrowing dried up. As a result, the government resorted to massive borrowing from the Central Bank of Nigeria, which primarily caused inflation. In contrast, the Tinubu government seems to have a better understanding of the requirements for external loans. By focusing on building external reserves and showcasing positive economic statistics, they have been working to build confidence among international market participants, which has recently manifested in the success of the latest Eurobond issue.
When the government launched a $2.35bn Eurobond, it was not surprising that it was oversubscribed by about 400 per cent, with the final subscription reaching US$13bn. This is the largest oversubscription ever achieved by Nigeria. However, this success is not based on confidence in the economy, as the government claims, but rather on the above-average interest rates of the bonds and the current global high liquidity.
Risks and Implications
The bonds’ interest rates are 9.625 per cent per year for the 6.5-year bond and 10.375 per cent for the 10-year bond. The average lending rates in advanced economies where the bond was launched are around six per cent. Additionally, the small per value or face value of such bonds makes them attractive for easy buying and selling in the international market. However, the risk of exchange rate variability remains a significant concern for the issuer, especially for a country with a non-tradeable currency.
Before a country comes up with borrowing, it would have made estimates of the needs. When there is oversubscription, the excess can be used for new or unanticipated developments that require funding or kept as reserves. It should also prevent a return to the market very soon, even after accountability on the use of the original subscription has been provided. Our government owes us no explanation. What was the 2024 bond, and its excess used for that requires going back to the market in less than one year?
The Cycle of Borrowing
Since no one questions the government on borrowing and no one cares about its usage, the likelihood that this government will go back to the international credit market in about six months is very high. This cycle compounds the underdevelopment trajectory and deepens the poverty level of the country.
It is time to protest to protect Nigeria from perpetual underdevelopment, while those who are working hard to put us into the mess are still around.
The Role of Debt in Development
How much personal debt do they contract or acquire before becoming rich? We are told that they borrow for infrastructure, and we have been rebuilding infrastructure in the last three decades, without an end in sight. Many times, when I see a signpost of a Sukuk bond by the roadside introducing what the bond was used for, I wonder if the road was awarded to a tailor or a civil engineer. One then wonders how much of the raised fund was expended on the repair?
Debt has now become the middle name of Nigeria. We have resources generating funds in both local and foreign currencies, and they are being stolen. The domestic funds are shared by the people in government through recurrent expenditure, and the country goes back to borrow the stolen money in the form of domestic debts, from the politicians and government officials or generally, looters, at high interest rates. Who are those subscribing to monthly government bonds or Sukuk bonds in millions? The ones stolen and kept abroad by them become our external debts, also at high interest rates. The poor people are born to serve the insatiable appetite of the rich!
A Call for Change
Confidence in an economy is better demonstrated by attracting direct and portfolio investments, as both types of investments bring in funds that can create employment, raise domestic output, and increase incomes. That is what our economy needs, not borrowing that can subject us to dependency and ridicule. The borrowed funds do not get to the borrower’s country, particularly for developing countries. The fund is often used to purchase machines, vehicles, arms, and other imported property, thereby generating employment in the countries supplying the items as well as enriching the banks that facilitate the transfer of funds. Eventually, the debtor country loses out on both sides. Only Nigerians can put a stop to this borrowing mania. Do not expect President Trump to come and fight on your behalf because this also benefits his country.