The Nigerian Senate has approved President Bola Tinubu’s request for a fresh N1.77 trillion ($2.2 billion) external loan to partially finance the country’s N9.7 trillion budget deficit for the 2024 fiscal year.
This approval, reached through a voice vote, followed the presentation of a report by the Senate Committee on Local and Foreign Debts, chaired by Senator Wammako Magatarkada (APC, Sokoto North).
Details of the Loan Request
In a letter submitted to the National Assembly on November 14, Tinubu outlined the necessity of the loan as part of his administration’s 2024 appropriation strategy. The requested amount, equivalent to $2.209 billion, will be sourced from external creditors.
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However, the decision has sparked widespread criticism due to Nigeria’s escalating debt burden and the stark disparity in exchange rates used to present the loan figures.
The loan is calculated at an exchange rate of N800 per dollar, significantly lower than the official rate of N1,687 per dollar as recorded in the Nigerian Autonomous Foreign Exchange Market (NAFEM). Many argue that this discrepancy is deceptive, with the true loan value exceeding the presented amount when recalculated using market rates.
“What makes this particular loan proposal even more concerning is that it is benchmarked at the exchange rate of 1 USD to N800, whereas the current exchange rate from the Central Bank of Nigeria stands at over N1,600 to 1 USD,” former Vice President, Atiku Abubakar, lamented.
It has been noted that the true cost of this loan when adjusted to actual market rates, could potentially exceed N3.6 trillion.
Rising Debt Servicing Costs
Nigeria’s debt servicing obligations have been on an upward trajectory, placing immense pressure on public finances. The Central Bank of Nigeria (CBN) recently reported a staggering $3.58 billion spent on servicing foreign debts in the first nine months of 2024, a 39.77% increase from the $2.56 billion recorded during the same period in 2023.
The CBN’s breakdown of debt servicing payments reveals dramatic spikes in 2024 compared to the previous year. In May, for instance, payments surged by 286.52% to $854.37 million, the highest monthly expenditure this year, compared to $221.05 million in May 2023. Similarly, January saw a 398.89% increase, with $560.52 million paid compared to $112.35 million in 2023.
While certain months, such as July and August, showed slight declines in payments, the overall trend points to rising costs, exacerbated by fluctuating exchange rates and Nigeria’s heavy reliance on foreign loans to bridge budget deficits.
The approval has been met with skepticism and backlash from various quarters. Critics highlight the already strained fiscal space, noting that the government is struggling to meet its existing debt obligations. Some argue that the new loan will further inflate the country’s debt servicing burden, crowding out critical investments in infrastructure and social programs.
“Nigeria is sinking further into debt, and the National Assembly has become an accomplice once more. Tinubu had, in July this year, boasted that the FIRS and Customs under his watch had collected all-time high revenues to finance the Budget. Why, then, are they still borrowing? There is something they are not telling Nigerians, even as they are being crushed by a combination of their failed trial-and-error policies and loan rackets,” Atiku said.
Sustaining the Growing Debt
Nigeria’s debt sustainability is increasingly in question, with over 90% of government revenue now allocated to debt servicing, according to the Debt Management Office (DMO). The new borrowing could exacerbate this trend, limiting the government’s ability to finance critical sectors such as education, healthcare, and infrastructure.
Furthermore, the increasing reliance on external loans, coupled with exchange rate volatility, raises concerns about potential sovereign default risks.
“I feel a sense of personal agony seeing that just a few years after the administration of President Obasanjo took our country out of foreign indebtedness, we are today back at the top spot in the same conundrum,” Atiku added.
Analysts have warned that Nigeria’s economic stability could be jeopardized if urgent reforms are not implemented to boost revenue generation and cut wasteful spending.
A Growing Fiscal Deficit
The approved loan is part of a broader effort to address Nigeria’s N9.7 trillion budget deficit for 2024, itself a reflection of structural imbalances in the country’s fiscal policies. Experts emphasize the need for comprehensive economic reforms to tackle issues such as subsidy removal, overdependence on oil revenues, and inefficiencies in tax collection.
They warn that without urgent measures to enhance fiscal transparency and implement robust economic reforms, Nigeria’s financial sustainability remains precarious, with potential long-term consequences for its economy and citizens.