The objective of the loan is “to strengthen systems for improved delivery of basic education and primary health services in participating states.”
The loan is meant to be implemented in 2024 pending approval by the board of the World Bank Group.
Sunday PUNCH also discovered that there was another loan titled: ‘Nigeria Macro-Fiscal Reforms for Economic Stability and Economic Transformation’.
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However, the amount for this other loan was not disclosed as of the time of filing this report.
There were also pending discussions on five other loan projects, according to findings.
These include $300m for solutions for internally displaced persons and host communities’ project, $500m for rural access and agricultural marketing project-scale up, $750m for the Nigeria distributed access through renewable energy scale-up project, $700m for sustainable power and irrigation for Nigeria project, and $500m for NG accelerating resource mobilization for reforms PforR.
The discussions will determine if the loans will become active or dropped.
So far, Nigeria has secured a total of $1.95bn in loans from the World Bank in the first four months of President Bola Tinubu’s administration.
The first was the $750m approved on June 9, 2023 to boost Nigeria’s power sector.
The second was $500m to help the country’s drive for women’s empowerment and was approved on June 22, 2023.
The third was a $700m loan to enhance adolescent girls’ learning and empowerment, and was approved on September 21, 2023.
The International Bank for Reconstruction and Development and the International Development Association, which make up the World Bank, have, over the years, advanced loans to Nigeria.
The IBRD lends to governments of middle-income and creditworthy low-income countries, while the IDA provides concessionary loans – called credits – and grants to governments of the poorest countries.
The World Bank is Nigeria’s biggest multilateral creditor, with the country owing about $14.51bn as of June 30, 2023.
Further breakdown showed that Nigeria has $14.51bn IDA debt and $485.75m IBRD debt by the second quarter of the year.
The Debt Management Office recently said Nigeria’s total public debt hit N87.38tn at the end of the second quarter.
The figure represents an increase of 75.29 per cent or N37.53tn compared to N49.85tn recorded at the end of March 2023.
Further breakdown shows that Nigeria has a total domestic debt of N54.13tn and total external debt of N33.25tn.
While the domestic debt makes up 61.95 per cent of the total debt, the external makes up 38.05 per cent.
There has been a significant increase in both domestic and external debts within three months.
The domestic debt rose by 79.18 per cent from N30.21tn, while the external debt rose by 69.28 per cent from N19.64tn in the first quarter of 2023.
In its 2022 Debt Sustainability Analysis Report, the DMO warned that the Federal Government’s projected revenue of N10tn for 2023 could not support fresh borrowings.
According to the office, the projected government’s debt service-to-revenue ratio of 73.5 per cent for this year is high and a threat to debt sustainability.
It noted that the government’s current revenue profile could not support higher levels of borrowing.
In a report titled, ‘Report of the Annual National Market Access Country Debt Sustainability Analysis,’ the debt office said, “The projected FGN debt service-to-revenue ratio at 73.5 per cent for 2023 is high and a threat to debt sustainability.
“It means that the revenue profile cannot support higher levels of borrowing. Attaining a sustainable FGN debt service-to-revenue ratio would require an increase of FGN revenue from N10.49tn projected in the 2023 budget to about N15.5tn.”
The DMO stated that the government must pay attention to revenue generation by implementing far-reaching revenue mobilization initiatives and reforms, including the Strategic Revenue Growth Initiatives and all the pillars with a view to raising the country’s tax revenue to Gross Domestic Product ratio from about seven per cent to those of its peers.
The Federal Government will be unable to borrow a lot as it nears its self-imposed debt limit of 40 per cent, according to the DMO.
To reduce borrowing and budget deficit, the DMO stated that the government should encourage the private sector to fund some of the capital projects that were being financed from borrowing through public-private partnership schemes.
It added that the Federal Government could reduce borrowing through the privatization and/or sale of its assets.
‘Borrowing plan stays’
Despite the rising debt, the Federal Government has insisted that it will stick to its borrowing plan.
Over the years, Nigeria’s low revenue generation has pushed the government to borrow more borrowing.
However, President Tinubu recently expressed his administration’s commitment to breaking the cycle of over reliance on borrowing for public spending and the resultant burden of debt servicing it places on the management of limited government revenues.
Tinubu recently said the country could not continue to service its debt with 90 per cent of its revenue.
He noted that the country was headed for destruction if that continued.
The President said, “Can we continue to service external debts with 90 per cent of our revenue? It is a path to destruction. It is not sustainable. We must make the very difficult changes that are necessary for our country to get (wake) up from slumber and be respected among the great nations of the world.
“To build a great nation, we must make bold decisions; even though it may be painful at the moment, it is not about you and me, it is about generations yet unborn.”
This indicates that the country may want to explore debt service suspension or relief or restructuring of the debt.
However, the Director-General, DMO, Ms Patience Oniha, told Sunday PUNCH that the government had no plans to seek debt service suspension or restructure the debt.
She said, “With the DSSI, the multi laterals were not giving any relief, only the bilaterals. For Nigeria, we don’t have many bilateral loans. They are very small and they are all concessionary.”
She further explained that there were some costs attached to the debt suspension program, which made the country opt out of it in the past.
Oniha stressed that the current administration was making significant efforts to boost revenue, which meant that the high debt service to revenue ratio was expected to decline.
“You can see a lot happening in revenue. If revenue is increased, your debt service to revenue ratio will improve. So, do you need to restructure?” she queried.
Although the Federal Government said it would stop taking on new borrowings, she clarified that it planned to stick to the borrowing target approved in the 2023 budget.
The immediate past President, Muhammadu Buhari, signed a N21.83tn budget for the current year, which had a deficit of N11.34tn.
The deficit was projected to be financed from N8.8tn new borrowings, N1.77tn drawdowns on loans secured for specific development projects and N206.18bn privatization proceeds.
The Federal Government said although it was not in a position to keep borrowing, it would still maintain its borrowing plan.
Recently, the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, while unveiling an eight-point agenda for the economy, said, “The government is not in a position to borrow if you consider 90 per cent debt service to revenue and behind that, a rising debt to GDP ratio. If you look at the last budget, you will see that there is a borrowing requirement built into it and appropriated by the National Assembly. And that is ongoing.”
At the 2023 Annual Business Summit of Capital Market Solicitors Association held in Lagos, the DMO noted that Nigeria had budgetary approval for N1.7tn external debt borrowing.
“Talking about external borrowing, let me clarify that this year’s budget has room for a new external borrowing of about N1.7tn. When you convert that at official rates, it gives you about $2bn,” the DMO DG stated.
She also said that Nigeria’s debt had grown since the country exited the Paris Club, adding that the key driver of the debt was the budgetary deficit.
Experts caution govt
A political economist, Prof Pat Utomi, cautioned against fresh borrowings, saying, “It is not advisable to seek new loans.”
He stressed that the country needed a thorough review of the current loans and how they had been utilized to ensure economic growth.
“The government has not shown enough discipline in the way it has deployed earlier borrowed money,” Utomi added.
He called for a 50 per cent cut in the cost of governance and transparency in the utilization of borrowed funds to stir production and boost foreign exchange in the country.
A development economist, Aliyu Ilias, told Sunday PUNCH that with the currency devaluation, the external debt burden would likely double.
“If Nigeria owes a particular amount in dollars, now that we have naira devaluation, the total amount in naira is going to double,” Ilias stated.
He called for a moratorium or debt buyback to alleviate the heavy burden of debt servicing for many African countries, including Nigeria.
“On the issue of debt, I would have wanted a situation whereby we can have a moratorium on our debt. Or there can be an opportunity for a debt buyback,” he added.
He also advised the World Bank and the International Monetary Fund to refrain from lending money to Nigeria until 2025.
“Tell the World Bank and the IMF to hold on and not give Nigeria money for now. Let us internally grow our revenue. It is because of the availability of money to borrow that we are into more debt,” he said.
The Resident Representative for the IMF in Nigeria, Ari Aisen, said the country’s economy could become stable without new IMF financing, urging the government to strengthen oil production and the tax base.
He said, “The Nigerian economy can aspire to stabilize without the IMF. It is certainly a sovereign decision of every member country to approach us in case of need. Let us not forget that oil prices are very supportive. The balance of payment is in a reasonable position. There are current account surpluses, meaning that the trade position is good. So, it is really a question of bringing more of this surplus into the economy. Making sure oil production benefits the economy is critical.
“Oil revenue and exports should benefit through an increased production of oil. That is part of why we believe that the government should actually re-double efforts to be able to increase the intake from the oil sector. In parallel, revenue should also increase in the non-oil sector through better compliance. The compliance gap is very large in Nigeria. Very few are paying their dues. Those who pay may feel that they are paying the entire burden, so it is important to broaden the tax base and include more taxpayers. In parallel, governance and good use of funds need to accompany those increased tax payments so that everyone feels more comfortable with the new reality.
“With a revenue-to-GDP ratio of eight per cent, it is very difficult to make a meaningful contribution to improve social indicators in Nigeria. There is an existential issue for the country, and I think the new administration is spot on in terms of conversations with the private sector on how everyone can start collaborating to boost revenue and provide public goods and services.”
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