BY James, Michael Igiri
Analysts have cautioned the government against plunging the nation into another debt trap,
even as there are plans to raise funds from external sources to finance critical
If the federal and state governments continue to rely heavily on debt instruments for the
financing of the country’s infrastructure needs, then, Nigeria’s total debt burden will be
hitting the 19trillion naira mark by the end of this year.
Based on figures obtained from the ministry of Budget and National Planning, the country’s
total debt stock is expected to rise by 6.72 trillion naira this year from the 2016 figure of
12.58trillion naira, making the total debt liability to rise to 19.3trillion naira by the end of
The frequency of borrowing by the federal and state governments has become a source of
worry to many analysts, who sound a note of caution that the country may be heading for
another debt trap if restraint is not exercised.
According to the Economic Recovery and Growth Plan, Nigeria’s public debt has increased in
recent years as the federal government has increased borrowing to finance budget deficits
owing to declining revenue.
The country’s domestic debt profile is expected to rise by 2.34trillion naira to 12.43trillion
naira this year from 10.09trillion naira in 2016, while the foreign component is being
projected to increase by 4.38trillion naira from 2.48tillion naira, to 6.8trillion naira.
The document stated that the focus of the government’s debt would be shifted from
domestic borrowing to foreign sources, as loans from international are cheaper and have
longer repayments periods.
For instance, the ERGP stated that while the proportionate share of foreign financing would
increase from the current level of about 28% to almost 72% in 2020, and that of domestic
financing would decrease gradually from about 54% in 2016 to about 26% by 2020.
The federal government is currently seeking $29.96billion in loans from the World Bank,
African Development Bank, and Japan International Cooperation Agency. The other
international financial agencies the government plans to borrow from are the Islamic
Development Bank and Chinas Exim Bank.
Some projects funded by the loans include the Mambila hydroelectric power, $4.8billion;
Railway modernisation (Calabar- Port Harcourt- Onne Deep Seaport segment), $3.5billion;
Abuja mass rail transit project (phase two), $1.6billion; and Lagos-Kano railway
modernisation project (lagos- Ibadan segment, double track) $1.3billion.
The rest are Lagos-Kano railway modernisation project (Kano-Kaduna segment, double
track) $1.1billion ‘others’, $6billion; Euro bond, $4.5billion; Federal Government Budget
Support, $3.5billion; social (education and health) $2.2billion; agriculture $1.2billion; and
economic management and statistics, $200million.
The Budget and National Planning Ministry said with the shift in focus to more foreign
borrowing, the domestic financing sector thus would be more available and accessible to
the private sector, thus avoiding crowding out. Thus it added, it would provide the private
sector with a leading role to drive economic growth, create jobs and reduce the rate of
poverty in the country.
The Ministry noted that the projects that would be financed with external loans would be
those that would support non-oil exports, and/or reduce import-dependence such that
there would be no risks of external debt overhang.
Reacting to the development by the Federal Government, some financial analysts, who
spoke to our correspondent, said borrowing might be a last resort by the government to
survive its revenue challenges.
They said there was a need for the government to urgently begin a readjustment of its fiscal
position in a way that would enable it, generate more revenue from taxes.
The Director-General, Institute of Fiscal Studies of Nigeria, Mr Godwin Ighedosa, said the
expenditure of the government needed to be reduced in a manner that would reflect the
rate of revenue decline.
He stated, “We have so much relied on oil revenue in the last 45years and with the decline
in oil revenue, time has come now for us to review our fiscal position.
There is a need for reform of the country’s tax administration system to enable the Federal
Government to raise more revenue from Capital Gains Tax. Our tax to Gross Domestic
Product ratio is one of the lowest in the world and we need to address that.”
The Registrar, Chartered Institute of Finance and Control of Nigeria, Mr Godwin Eohoi, said
the need to get the economy back again might have influenced the decision for huge
He stated that while borrowing itself was not a bad economic strategy, the way in which
such borrowing was being used was important.
Eohoi, said, “I am not worried about borrowing because debt is leverage, but it depends on
what the loan is used for. It must be used for productive purpose and not to finance
“Oil prices are just beginning to bounce back and so I see the borrowing as a last resort to
prevent the total collapse of the economy since we had a serious revenue shortfall. When
you have a decline in revenue you have to resort to borrowing.”