President Bola Tinubu, currently in Mecca, Saudi Arabia, has entered advanced negotiations with the Islamic Development Bank for a multi-billion dollar infrastructure finance facility.
This funding aims to support a diverse portfolio of infrastructure projects at both federal and sub-national levels in Nigeria. The initiative follows President Tinubu’s discussions with Dr. Mansur Muhtar, the Vice-President of the Islamic Development Bank.
“The Islamic Development Bank President announced the provision of $50 billion U.S. Dollars of new investment for the African continent from the Arab Coordination Group (ACG). As the largest market and the largest economy in Africa, Nigeria will certainly receive a significant share. We look forward to supporting Nigeria’s economic transformation,” said Dr. Mansur Muhtar.
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This development comes at a time when the Nigerian government is grappling with a severe financial crisis, as acknowledged by the National Security Adviser, Nuhu Ribadu.
“Yes, we’re facing budgetary constraints. It is okay for me to tell you. Fine, it is important for you to know that we inherited a difficult situation, literally a bankrupt country, no money, to a point where we can say that all the money we’re getting now, we’re paying back what was taken. It is serious!” Ribadu said.
In response to the financial challenges, the federal government, under the leadership of President Tinubu, has turned to borrowing as a means of addressing the current predicament. The country’s public debt rose to N87 trillion under the past administration led by Muhammadu Buhari, and projections suggest further increases under the present administration.
The Tinubu administration’s medium-term expenditure framework (MTEF) reveals plans to accumulate a combined fiscal deficit of N30.6 trillion between 2024, 2025, and 2026, raising concerns among experts. The proposed 2024 budget, with a fiscal deficit of N9.04 trillion, exceeds the 3% threshold stipulated in the Fiscal Responsibility Act (FRA) 2007.
Complicating matters, Nigeria’s financial crisis is exacerbated by challenges in the oil sector, where crude oil production falls short of the 1.8 million barrel per day (mbpd) quota assigned by the Organization of Petroleum Exporting Countries (OPEC).
Amid mounting debt, there are increasing concerns about the prudent utilization of limited funds, especially as loans are being securitized with future crude oil proceeds. The recently proposed 2023 Supplementary Budget of N2.17 trillion, to be financed with loans, has faced criticism for its extravagant expenditures, particularly those catering to the leisure of political officeholders.
Notable allocations in the supplementary budget include N1.5 billion for vehicles for the Office of the First Lady, an entity not constitutionally recognized. Although the controversial N5 billion yacht was initially included, public backlash prompted the National Assembly to remove it from the allocation.
Additional allocations in the supplementary budget encompass N2.9 billion for Sport Utility Vehicles (SUVs) for the Presidential Villa and another N2.9 billion for replacing operational vehicles for the presidency.
Furthermore, N4 billion is designated for the renovation of the president’s residence and N2.5 billion for the vice president’s residence. The proposed State House budget is N28 billion, with N12.5 billion allocated for the Presidential Air Fleet.
The juxtaposition of seeking external funding while grappling with a domestic financial crisis raises questions about the sustainability of government expenditures. Critics are concerned that depending on external loans might lead to increased debt burdens for the nation.
Thus, the need for transparency in negotiating terms and conditions of such loans, as well as effective utilization of the funds for their intended purposes, has become a focal point in the discussions.
As negotiations with the Islamic Development Bank progress, stakeholders, including economists, policymakers, and the general public, are closely monitoring the outcomes. It is believed that the government’s ability to strike a balance between addressing infrastructure needs and managing the country’s financial crisis will be a critical factor in determining the success and sustainability of these funding endeavors.