With the recent Senate’s approval of President Muhammadu Buhari’s $5.513 billion loan request, it has bumped the country’s external debt profile to $33.18 billion, representing about 91.4 percent of the country’s foreign reserves of $36.31 billion at the close of transactions at the weekend.

According to the Organised Private Sector (OPS), rather than exploring fiscal reforms that would aid productivity, diversification, and stimulate private sector contribution to the economy, the government continues to explore the easy approach to financing its budget.

The Medium-Term Expenditure Framework and Fiscal Strategy (MTEF-FSP) report recently released by the Federal Ministry of Finance, Budget, and National Planning shows that in Q1 2020, Nigeria incurred a total sum of N943.12 billion in debt service while the Federal Government’s retained revenue was put at N950.56 billion.

Consequently, the stakeholders warned that a drop in the country’s foreign reserves spells doom for debts servicing. Also, beyond fiscal reforms, the private sector argued that the tenor of any loan repayment by any administration should be limited to the span of that administration to check debt accumulation for future generation.

Their argument stems from the fact that Nigeria’s external debt level of $27.68 billion, as at 2019, is about 75 per cent of external reserves, the highest since 2005. Without an uptick in crude oil prices and sales, reserves may fall below $30 billion, reducing the cover to external debt to below 100 per cent. Reserves are currently at $36.31 billion.

According to the Joint World Bank-IMF Debt Sustainability Framework for Low-Income Countries released earlier, a country’s debt service to revenue threshold should not exceed 23 per cent. With debts remaining unsustainable, the government might have no choice but increase its revenue or face further spending cuts.

Plausible reasons for the increase in the external debts include lower oil prices, disproportionate spending, and defence of the exchange rate. The categories of the debt owed fall under Multilateral, Bilateral and Commercial loans (European and Diaspora bonds). State governments owe 15 per cent of the country’s foreign debts. While Nigeria’s external debt to GDP remains under 10 per cent and well below global benchmarks, the debt service commitment of about $1.5 billion at the current debt levels remains worrisome.

Unlike previous economic crises in 2009 and 2016, Nigeria’s external reserves may not provide the buffer required in 2020. Though the Central Bank of Nigeria (CBN) has expressed commitment to billions of dollars in forex forward sales, foreign demand for its bills continues to dwindle.

Reacting, the Lagos Chamber of Commerce and Industry (LCCI) stated that the country’s capacity to service the current stock of debt raises serious sustainability concerns.

LCCI’s Director-General, Dr. Muda Yusuf, said the looming plunge in revenue, will challenge the capacity to fund both the recurrent and debt service, thus putting capital project funding at a great risk.

“The opportunity cost of high debt service commitment for the economy and citizens is very high, as the economy is denied funding for critical infrastructure projects needed to build a globally competitive economy. There is also the exchange rate risk inherent in the exposure to mounting foreign debt, which we need to worry about,” Yusuf said.

He added: “As the currency depreciates, the burden of servicing foreign debt would intensify, especially when productivity in the economy remains low. This is a major problem with increasing the stock of foreign debt.

“All these concerns underscore the imperative of reforms to reduce recurrent expenditure, especially the cost of governance. It is critical also to ensure appropriate policy choices to attract equity domestic and foreign private-sector capital for economic and social infrastructure financing.”