(BACKPAGE) A country living on loans



Uba Group

Someone thinks something is wrong for Governor Charles Soludo, a professor of economics and former Governor of Central Bank of Nigeria, to be asking Anambra State House of Assembly to give him the approval to obtain a loan for “the construction and refurbishment of key infrastructure in the state.”

The skepticism may be a result of the use of infrastructure as an excuse given by the government of President Muhammadu Buhari to ramp up loans from N12.06 trillion in 2015, to N41.60 trillion by the first quarter of 2022 ending.

A loan is not a bad thing in itself. After all, finance experts suggest that a going concern can raise loans, such as leveraging or gearing, to increase profit. In other words, you can trade with other people’s money profitably– if you have a profitable venture.

You could invest your cash in high-yielding marketable securities, like Fixed Deposits and Treasury Bills, and long-term financial instruments, like stocks and bonds, and use them as collateral for a loan that you invest in other businesses. That way, you simultaneously reap returns on your money and other people’s money.

But if your gambit fails, you may lose your shirt and become poorer. It will be like a house of cards or sand castle blown away by the wind. You may even end up in jail if the scheme looks like a financial crime in any way.

If you took the loan from bankers, or, worse still, from pawn shop operators, who sometimes work with the mafia in countries like America, they may not only confiscate your property, they may break your leg, even kill you in extreme cases.

Jewish moneylender Shylock, Shakespeare’s Merchant of Venice, was so mean-spirited that he wanted to extract a pound of flesh from his debtor, Anthonio– until the “lawyer,” Portia, showed him a different perspective on the terms of his loan agreement.

A government borrows to fund its programmes through deficits, which is excessive government spending on overall revenue. Deficit could be any or a combination of three types, viz, Fiscal deficit, Revenue deficit and Primary deficit, which could be defined as follows:
Fiscal deficit is excess of total expenditure over total receipts, excluding borrowing; primary deficit, which is fiscal deficit of the current year, less interest payments due in the year; and revenue deficit is excess of total expenditures over total receipts, including borrowings.

If the budget deficit, funded by debts, becomes continuous, it diverts available funds from developmental programmes for the good of the people into servicing and paying off debts, as it now obtains in Nigeria.

Some ways that governments can offset budget deficits are: for the central bank to print more money, which former Ugandan President Idi Amin seemed to prefer; government’s domestic borrowings through Treasury Bills and bonds; and external borrowings from foreign governments and multilateral organisations, like World Bank and International Monetary Fund.

Other methods are by raising taxes; receiving gifts from sundry benefactors, like foreign governments and multilateral organisations; sale of assets; and revenues from sundry government-owned enterprises, like Nigeria Sovereign Investment Authority, Nigeria National Petroleum Company Limited and Nigeria Ports Authority.

Actually, these are the main sources of funding for a national budget. The borrowing part only gets worrisome when there are no macroeconomic policies that should reduce expenditure and raise all forms of cash inflows, minus debts.

“When workers are always absent from work, or are unable to be productive because of ill-health, they cannot contribute to the country’s Gross Domestic Product. And soon, everyone will be on their way to the poor house”

Nigeria’s case is worse because most of the inflows, including debt, are used to finance the overheads and unnecessary spending of Big Government, and a profligate petrol subsidy regime.

When a government’s financial planning, budgeting and macroeconomic policies are not right, it gets what happened to Nigeria in the first quarter of 2022: A total debt servicing of N1.94 trillion exceeding total government revenue of N1.63 trillion, a difference of N310 billion and suicidal 119 percent Debt-to-Revenue ratio.

You need to see poor Zainab Ahmed, Minister of Finance, Budget and National Planning, reading out figures of several sources of income that didn’t add up to, not to talk of exceeding, the amount needed to service government debt.

You already know that where debt servicing exceeds all sources of revenue earned by the government, the only way out is for the government to take loans. Somehow some unimaginative government apologists argue that Nigeria’s current 23.7 per cent Debt-to-Gross ratio is acceptable.

This makes you wonder if some policy makers and their advisers read their economics backwards. Why a policy maker would prefer to measure the liquidity of the government with Debt-to-Gross Domestic Product ratio instead of the more realistic Debt-to-Revenue ratio is a bit unclear.


You would have expected that they would think that you could only meet debt payment obligations from streams of income, especially in cash, that they receive and not the value of the economy. It’s the income derived from activities of the economy that you can use to pay your bills, stupid!

It’s a good thing that the Director General of the Debt Management Office, Patience Oniha, appears to be agreeing with the more realistic public intellectuals who argue that Debt-to-Revenue is more realistic than Debt-to-Gross Domestic Product ratio to measure government’s cash flow planning.

The insensitive and analogue administration of President Buhari is already looking for ways to further increase government deficit by making provision of a N6.72 trillion “blackhole” for petrol subsidy, a whopping 35 per cent, in the 2023 annual budget that is being proposed.

If this comes through, you can kiss infrastructure investment goodbye in the coming year. But the bigger implication is that Nigeria may be heading directly into the abyss of insolvency and economic stagnation.

Funny, Nigeria is not even taking advantage of the opportunities arising from the Ukrainian-Russian War that has led to scarcity and hike in the price of petroleum. These days, no one is even talking about the Excess Crude Account that warehouses excess oil revenue above the benchmark price set by the government for sale of crude oil.

For some inexplicable reasons Nigeria is also not meeting the generous production quota that its colleagues in the Organization of Petroleum Exporting Countries have allowed.

That partly explains why only N1.23 trillion was realised from oil productions between January and April 2022, contrary to the N3.12 trillion that was projected. That is a disgraceful 39 per cent shortfall.

You then wonder why those who ran Nigeria National Petroleum Corporation, and are now running its successor, Nigeria National Petroleum Company Limited, without being able to meet crude oil production and produce strategic petroleum products, have not been let go.

More to the point is that the government retains and continues to pay individuals, who are hired to run its petroleum refineries, but run only the depots that stock imported and subsidised petroleum products.

Have you ever wondered why the plight of the John Doe on Main Street Nigeria has never improved whether the government removed subsidies from diesel, kerosene and aviation fuel, or retained it for petrol?

Somebody’s suggestion that the subsidy removed from the former products should have been used to offset the subsidy of petrol doesn’t seem to have resonated in the ears of Nigeria’s clueless and heartless petroleum industry and public finance policy makers.

A government on a loan binge to finance overheads, pay subsidies and service loans, will soon cause a Srilankanisation of Nigeria.