Lawmakers approve Nigeria’s $2.7bn external borrowing plan

The Nigerian Senate recently approved President Buhari's $2.7 billion external borrowing plan, aimed at funding critical projects across the country. The loans, which consist of a planned $1.5 billion World Bank facility and a 995 million euro loan from the Export-Import Bank of Brazil, as well as funds from Deutsche Bank of Germany, are expected to bolster infrastructure development and economic growth. Emmanuel Odiaka, CEO of ECOB Capital, shed light on the implications of this borrowing plan, especially with a focus on the allocation of funds to states. The COVID-19 pandemic has underscored the need for countries, particularly developing nations like Nigeria, to rely more on external borrowing to navigate the economic challenges brought about by the global health crisis. With a substantial portion of the $2.7 billion earmarked for states, concerns arise regarding the utilization of these funds. Odiaka highlighted the potential risk of states using the borrowed money for current expenditures, leading to increased debt servicing and a heavier burden on future generations. Nigeria currently grapples with a debt service ratio of over 83%, indicating the urgency for prudence in borrowing and expenditure. Additionally, the conversation turned towards Nigeria's Eurobond plans for the year. Despite deferring plans last year due to the pandemic, there is optimism for a successful outing in the Eurobond market. With recent successes seen by African countries like Ghana in issuing bonds, global investors are displaying a willingness to embrace riskier investments. Odiaka expressed confidence in Nigeria's ability to attract investment in Eurobonds, citing Ghana's oversubscribed bond issuance as a positive indicator for the regional market. The discourse on Nigeria's debt stock remains pertinent, with the Debt Management Office reporting a total debt of 32.9 trillion naira at the end of 2020, encompassing federal, state, and FCT debts. While borrowing is inevitable for economic sustenance, the critical question revolves around debt sustainability and revenue diversification. Odiaka emphasized the significance of augmenting foreign exchange earnings through economic diversification to ensure the feasibility of debt repayment and mitigate reliance on oil revenue, which currently accounts for a substantial portion of Nigeria's revenue stream. As Nigeria embarks on its external borrowing journey, the focus shifts towards prudent utilization of borrowed funds, revenue diversification efforts, and sustainable debt management strategies to foster long-term economic stability and growth.