(Last Updated On: April 3, 2017)


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

recurrent expenditure.

“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.”