BackpageOn Buhari’s Chronic Borrowing And Nigeria’s Debt Crisis

On Buhari’s Chronic Borrowing And Nigeria’s Debt Crisis




The reckless borrowings of the outgoing government of President Muhammadu Buhari have demonstrated an unflinching, nonchalant attitude towards the country’s crippling debt crisis. The administration’s disregard for the implications of accumulating excessive debt is set to leave severe consequences for Nigeria’s financial stability and future prospects, as well as encumber the administration of his successor with unwanted shackles. Yet, as bad as the forecast is, the government is still bent on worsening it with even more borrowing. To describe its debt habit as irresponsible is putting it mildly.

Nigeria’s heavy reliance on borrowing to fund its budget, particularly in the face of global economic challenges, has raised significant concerns over Buhari’s tenure. The country’s ability to obtain foreign loans has been hindered by the global increase in interest rates and the shifting patterns of investor funds away from emerging economies. More so, the appreciation of the US dollar to a 20-year high has further exacerbated Nigeria’s debt servicing costs, impacting the nation’s overall financial health.

In response to the complex challenges facing Nigeria’s economy, the International Monetary Fund (IMF) recently identified key policy priorities, including fiscal policy, monetary policy, exchange rate policy, and structural reforms that a responsible government is supposed to adhere to, but it has been a while that the country had the benefit of financially responsible governance. This administration ought to reduce off-budget commitments, improve debt management, and enhance domestic revenue mobilisation.


While these are crucial for the country to navigate the challenges posed by crippling debts, foreign exchange limitations and low foreign reserves, I would have expected the current Minister of Finance, Budget and National Planning, Zainab Ahmed, to be extremely prudent, creative and smart with revenue generation.

Economic analysts have consistently emphasised the importance of Nigeria exploring internal solutions, fostering innovation and diversifying revenue sources, expanding the tax net, combating oil theft, and considering the sale of forfeited properties to the Economic and Financial Crimes Commission (EFCC) as strategies to address potential shortfalls in revenue generation.

The country’s current revenue is just too small to fund the needs of the population and the Muhammadu Buhari Administration has failed to adequately address these concerns, as indicated by the recent statements of Ben Akabueze, the Director-General of the Budget Office of the Federation.

As if revenue shortfall was not significantly bad enough, Nigeria’s budget-to-GDP ratio is significantly lower than that of other African nations, limiting the country’s borrowing capacity. The government’s inability to generate sufficient revenue to service its debt obligations has resulted in a high debt service ratio, reaching alarming levels of nearly 100 percent. The administration’s budget allocation and prioritisation of government projects have come under scrutiny, given the limited resources and intense competition for funding.

This is why recent borrowing activities, including a new $800 million loan from the World Bank for post-subsidy removal palliatives, have raised further concerns. This loan is supposedly to be distributed to the most vulnerable or poor people living in the country. Does anyone actually believe that these monies will actually get to the intended recipients? Your guess is as good as mine that the bulk of this new borrowing will be stolen by government officials and their collaborators working as consultants.

Nigeria’s total external debt has dramatically increased during President Buhari’s tenure, primarily due to the devaluation of the naira, which has exacerbated the debt service burden. The country’s borrowing practices have become increasingly unsustainable, with the overall debt reaching alarming levels and the budget deficit primarily financed through additional borrowing.

The recent decision to borrow funds for post-fuel subsidy removal palliatives, despite the suspension of the subsidy removal process, is particularly troubling. It raises questions about the purpose of taking on additional loans when substantial sums are being spent on subsidies.

The need for the government to prioritise cutting waste rather than resorting to borrowing is paramount. Questionable spending and diversion of public funds for personal interests, as evidenced by recent expenditures, have further eroded public trust and exacerbated Nigeria’s debt crisis.

According to data from the Debt Management Office (DMO), Nigeria’s debt to China has experienced a staggering increase of 209 percent over the past eight years. In December 2022, then country’s total borrowing from China reached $4.29 billion, a significant surge from $1.39 billion in June 2015, shortly after President Buhari assumed office. Chinese loans account for 84.73 percent of Nigeria’s bilateral debt, with the remainder sourced from France, Japan, India, and Germany.

The growth in Nigeria’s debt to China can be attributed to the favourable borrowing terms and conditions offered by China compared to other multilateral institutions. According to economic analysts, the driving factors behind Nigeria’s substantial borrowing are obviously the country’s revenue shortfalls and an expansionary fiscal policy, characterised by high budget levels, particularly for recurrent expenditure. Why the Finance Ministry will incur debt for recurrent expenditure is beyond my capacity to comprehend and they double-down instead of cutting off these unproductive spendings.

Despite extensive borrowing by the government, poverty levels in Nigeria have continued to escalate. The National Bureau of Statistics reported that 133 million people experienced multidimensional poverty in the previous year. This rise in poverty coincides with the significant increase in Nigeria’s debt to China.

Nigeria’s low revenue and rising interest payments have left the country with limited funds after servicing debt obligations. Persistent fiscal deficits are partly financed by costly Central Bank loans, resulting in a public debt stock-to-GDP ratio of 38 percent, slightly below the government’s self-imposed limit of 40 percent. The preference for borrowing from China, driven by favourable terms, has exacerbated the challenge of allocating sufficient funds for infrastructure development and proper social welfare programs.

The World Bank, which is following the decline of Nigeria’s economy closely, has continuously highlighted Nigeria’s fragile fiscal position, particularly since the late 2021 global oil price boom. The organisation suggests that scrapping the expensive petrol subsidy, which consumed 2.3 percent of GDP in 2022, could alleviate fiscal pressure.

President-elect Bola Tinubu has pledged to end the subsidy, aiming to increase revenue. However, this move could also raise the cost of living for Nigerians already facing high inflation. With the outgoing administration still wanting to spend the $800m for subsidy removal palliatives, Nigerians might be worst hit in the near future.

The World Bank projects Nigeria’s economy to grow at an average rate of 2.9 percent per year between 2023 and 2025, slightly higher than the population growth rate of 2.4 percent. However, the bank warns that an additional 13 million Nigerians will fall into poverty from 2019 to 2025 due to low economic growth. Currently, 41 percent of Nigeria’s estimated 219 million population live in extreme poverty. In the absence of significant boosts in oil revenues and tax reforms, the World Bank forecasts that Nigeria’s fiscal deficit will remain above 5 percent of GDP until 2025. The mounting debt burden, along with rising interest payments, poses challenges to debt sustainability and economic stability.

To address the overwhelming debt burden, the incoming administration of Tinubu faces the crucial task of effectively managing Nigeria’s debts and implementing measures to alleviate the economic strain on the country. This includes exploring alternative sources of funding, such as attracting foreign direct investment, promoting domestic revenue generation through tax reforms, and reducing reliance on costly central bank loans.

Furthermore, it is essential for the new administration to adopt a more strategic and prudent approach to borrowing, carefully evaluating the long-term implications and ensuring that borrowed funds are channelled towards productive sectors that can generate sustainable economic growth and reduce poverty levels.

Sadly the reckless borrowing that occurred during the outgoing Buhari government, particularly the significant increase in Nigeria’s local and foreign debt, has had detrimental effects on the country’s economy, poverty levels, and overall standard of living. The incoming administration must prioritise debt management, explore alternative funding sources, and implement effective policies to promote sustainable economic growth and alleviate the burden on the Nigerian population. Only through responsible financial practices and strategic decision-making can Nigeria overcome its debt challenges and foster a brighter future for its citizens.

The incoming Tinubu administration must be ready to hit the ground running as soon as Inauguration Day with the best minds to figure out how to increase government revenue and subsequently clean up the budgeting process and execution. I must add that a complete restructuring that will involve devolution of greater powers to the states must be on the table if the country is desirable of rapid and guaranteed economic prosperity.

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