Ways and Means and Nigeria’s Debt Situations
By Abdulrahman Abdulraheem
Nigeria is regarded as one of the potentially wealthy and resource-rich countries in the world even though that huge potential is yet to translate into real economic prosperity for the nation. Just like Oliver Twist, even first-world countries who are deemed to have everything at their disposal often need more and they resort to taking loans (mostly domestic) to balance their annual budgets. It is therefore understandable that successive administrations in a third-world nation like Nigeria have over the decades relied on local and foreign loans to fund a lot of the country’s critical projects.
Another justification that has been put forward in support of Nigerian leaders’ seeming obsession with foreign loans is the fact that if a project requires a certain amount of money to be accomplished and it takes five years to generate that money naturally, it is better to take a loan with a reasonable interest rate and complete the project within a year or two, and use the regular revenue to service and pay off the loan. This will make the project useful to the people and solve the problems it is meant to address in record time. It will also save the nation or state the extra cost that may come with changes in weather, environmental issues, inflation, rise in cost of building materials etc if the project is delayed for five years.
This is probably why our leaders have over the years relied on London Club, Paris Club, China Exim Bank and other international money lenders to carry out big projects across the country.
While the need to take local and foreign loans for crucial projects has never been debated, critics have over the years bothered over corruption, inflation of contracts, virement, misplacement of priorities, borrowing for consumption etc.
There are many factors fueling Nigeria’s debt crisis, the main one being fiscal mismanagement. The Nigerian government lacks fiscal discipline. The Fiscal Responsibility Act of 2007 clearly stated that the government at all levels might borrow only for “capital investment” and “human development.”
The worst leg of this debt crisis is the issue of Ways and Means Advances from the Central Bank of Nigeria (CBN) which the immediate past administration abused beyond what words can describe. When he came on board, Governor Olayemi Cardoso had to put his feet on the ground and warn that the apex Bank will no longer grant Ways and Means Advances to the Federal Government, unless the outstanding balance of about 30 trillion naira is settled.
While his position complies with section (38) of the CBN Act (2007), Mr. Cardoso said the payment of the outstanding balance on Ways and Means will help to control inflation in the country. The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, had to align with Cardoso’s stand, saying the Executive will not only stop seeking the loans but would also begin paying back the outstanding ones.
Nigeria’s Debt Situation
In three months, Nigeria’s debt went up by ₦24.33trn – from ₦97.34 trillion ($108.23 billion) in December 2023 to ₦121.67 trillion ($91.46 billion) to March 2024. The Debt Management Office (DMO) noted that the increase was from new borrowing to part-finance the 2024 Budget deficit.
The DMO said as of March 31, 2024, the country’s domestic and external debts stood at ₦121.67 trillion ($91.46 billion). The debt represents external and domestic borrowings by the Federal Government and the 36 state governments and the Federal Capital Territory (FCT).
While total domestic debt was put at ₦65.65trn ($46.29bn), total external debt was ₦56.02trn ($42.12bn), the DMO stated that total public debt grew from ₦59.12trn last December to ₦65.65trn as of March 2024.
The total debt was reduced in dollar terms by $16.77bn or 18.34 per cent, as the increase was driven majorly by naira depreciation. The office used an official exchange rate of ₦1,330/$ to convert external debts to naira from ₦899.39 used to convert the debt in December 2023.
The rise was also attributed to a new borrowing undertaken to partly finance the 2024 budget deficit, and the securitisation of a portion of the ₦7.3tn Ways and Means advances at the CBN.
Tinubu’s Campaign Promise
President Tinubu had in the course of seeking the highest office in the land, vowed to reduce Nigeria’s borrowings.
The DMO’s report came as President Bola Tinubu repeated the sentiment recently and expressed his administration’s commitment to breaking the cycle of overreliance on borrowing for public spending and the resultant burden of debt servicing it placed on the management of limited government revenues.
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 necessary for our country to get (wake) up from slumber and be respected among the world’s great nations.
“To build a great nation, we must make bold decisions; even though it may be painful, it is not about you and me. It is about generations yet unborn.”
Cardoso’s Crusade
The CBN Governor recently sustained his crusade against recklessness in borrowing, emphasising the importance of transparency in debt management and borrowing activities to build trust with investors, creditors, and the public.
Cardoso made the call in his opening remarks at a workshop on project management organised by the West African Institute for Financial and Economic Management (WAIFEM) in Abuja, stating that routine disclosure of debt information is essential for building trust.
Cardoso also highlighted the need for investment in human capital and capacity development, noting that debt management professionals require continuous training, mentorship, and technical assistance to excel.
Effective debt management, according to him, is a strategic necessity in today’s world. It allows governments to finance critical investments without burdening future generations.
The event, co-organised by the World Bank, IMF, and WAIFEM, aimed to strengthen national capacities for debt management and promote the development of robust Debt Management Strategies and Annual Borrowing Plans.
His words: “We must continuously provide our debt management professionals with the necessary training, mentorship, and technical assistance. Moreover, routine disclosure of our debt portfolios and borrowing activities is vital.
“Strengthening national capacities for debt management is crucial. It allows us to meet the government’s funding needs in a cost-effective and risk-conscious manner, both now and in the future. Countries must prioritise building a balanced and resilient debt portfolio.
“At the core of sound public debt management is the Debt Management Strategy (DMS) – a formal plan devised by the government to achieve its debt management objectives.”
According to him, this process requires a comprehensive approach involving a well-coordinated institutional framework for public debt management and a stable macroeconomic environment. He explained that effective debt management is not just a technical exercise but a strategic necessity. It ensures governments can finance critical investments in infrastructure, education, healthcare, and other essential services without jeopardising the well-being of future generations.
Last Line:
Cardoso doesn’t care so much about today. He doesn’t talk about temporary, pecuniary gains or short-term comfort. He is always about the future. He has presented the government with a template on how to balance debt with future. He talked about how to benefit from creditworthiness without setting a dangerous trap for the future generation of Nigerians. It is now left to the fiscal authorities to heed the voice of reason.
Abdulrahman Abdulraheem is the author of “e-Naira Revolution: A Peep into Nigeria’s Cashless Future”
