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THE LOOMING DEBT TRAP: FG borrowing may deepen poverty in Nigeria

Corruption: How Buhari is losing the war

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By Dele Sobowale

When those in office regard the power vested in them as personal prerogative, they inevitably enrich themselves, promote their families, favour their friends. The fundamental structures of the modern state are eroded like the supporting beams of a house after termites have attacked them.

The people have to pay dearly and long for the sins and crimes of their leaders  –  Lee Kuan Yew, former Singaporean Prime Minister.




Lee Kuan Yew is familiar to everybody and his famous book, FROM THIRD WORLD TO FIRST IN ONE GENERATION was a best seller worldwide for almost a year. It was a gripping story of how a small country hardly bigger than Ogun State in Nigeria, starting with no natural resources, was managed so intelligently as to become a first world country in thirty years.

President Muhammadu Buhari

By contrast, Nigeria with all of our natural and human resources had remained stubbornly in the third world and we are now in danger of creating a special category for ourselves by becoming the world’s only fourth world country.

Comparing Singapore with Nigeria is perhaps the best way to demonstrate our predicament as a nation today.

Two recent events in the aviation sector in the two countries illustrate the differences between a nation governed by purposeful leaders who are also always conscious of the basic principles of economics and one whose leaders are missing the boat each and every time on economic management. It is difference between “borrow and invest” and “borrow and waste”.

A few years ago, Singapore Airlines announced that it was ordering planes for non-stop nineteen-hour flight from its capital to New York City in USA – making it the longest non-stop flight in the world. Singapore Airlines which started doing business years after the defunct Nigerian Airways, is today one of the world’s leading airlines earning foreign exchange for the country. Nigerian Airways we all know was liquidated by the Federal Government under Obasanjo in 2006. It never made a kobo for Nigeria.   Instead the government owes the staff about N42bn.

Early this year, the FG under Buhari announced that a new national carrier would be launched in December this year called Nigerian Air. An undisclosed sum of money was allegedly squandered on it by the Minister of State for Aviation, Mr Hadi Sirika, who is friend of the family to President Buhari. Publicity for the new airline was far reaching; it was all over Europe and America that a new elephant was about to fly.

History will record that in October 2018, and on due date, Richard Quest of the Cable News Network, CNN, was on Singapore Airline’s maiden non-stop flight to New York as promised and fully-booked. Late in September, the FG of Nigeria, through the same Hadi Sirika, announced that the launch of the Nigeria Air had been suspended without telling Nigerians what happened to the funds wasted and who was getting punished for it. That was bad enough.

A quick check around in aviation circles revealed that even if all Sirika flushed down the drain was N2 billion as alleged, it was sufficient money to buy two of the planes now flying non-stop from Singapore to New York and earning dollars for Singapore.

That true story leads us straight into the heart of this national alarm about Nigeria’s rising debt which is increasingly ending up impoverishing the people, while borrowing by the government of Singapore had been managed to increase the per capita income of Singaporeans. The reasons Singapore is rising and Nigeria is falling were explained by Yew in that book.


VANGUARD on its front page on October 18, 2018, published infographics by Jide Babatunde titled NIGERIA’S RISING FOREIGN DEBT ($bn). It was a brilliant summary of the alarming and unprecedented increase of Nigeria’s foreign debt since the Buhari administration came into power. Unfortunately for Nigerians now alive and in the future, the debt just went up by another $2bn recently bringing the total to $24bn.

In real terms, that makes it $14bn borrowed in just three years or 130 per cent increase over what Buhari inherited in 2015. Even that disturbing fact fails to capture the full impact of the tragedy which awaits the nation if the trend continues. Four more years of Buhari and we could be in debt up to $48bn or more.

File: Children affected by poverty

A quick review of our history will help to put the entire situation into perspective. Buhari’s three years and five months’ tenure in office is one of the shortest among Nigerian leaders since the Civil war. In descending order the length of service have been as follows:

  • Obasanjo 11 years

(military and civilian)

  • Gowon    9 years
  • Babangida 7years 11 months
  • Abacha    5 years
  • Jonathan  5 years
  • Buhari      4 years

8 months (military and civilian)

It took the country 26 years, from 1978 to 2004, to accumulate the $36bn, or $1.4bn per annum, from which Dr Nogozi Okonjo-Iweala extricated the country in 2004. Most of the debt was actually accumulated interest for failure to repay loans as and when due.

Under the Babangida regime when crude oil prices went as low as $10 per barrel at one time, a Minister, Alhaji Abubakar Alhaji, was charged with the responsibility of getting our loans rescheduled while minimising the penalties that were imposed by the lenders at the time.

No Military Head of State and certainly no elected President since 1970 ever accumulated up to $10bn in three years. Buhari’s $14 billion now, or $4.6bn per annum, with the possibility of more to come, is a record which should make us tremble with fear because of the consequences that will follow. It is unprecedented.


Last week, three officials of the FG were at various conferences attempting to allay the fears of Nigerians and foreigners about the debt situation which everybody else considers disturbing. The Director-General of the Debt Management Office, DMO, the Minister of Finance and the Minister for Budget and National Planning went abroad with the same story which can be briefly summarised as follows.

Nigeria’s debt indeed is rising rapidly. But, it is sustainable because Nigeria has the lowest debt to GDP ratio of most leading countries in the world. Indeed, Nigeria still has a great deal of capacity to borrow. Nigeria’s problem is not debt but revenue generation. We are not collecting taxes enough. Debt is not our problem but revenue.

Only two indisputable truths are contained in that submission. Yes, our debt/GDP ratio is low. And we are not collecting taxes especially from the wealthy tax-delinquents because they are close to the corridors of power.

On the face of it, one would assume that they have provided reassurances. In reality, they have misled the unwary. To begin with none of them is an economist – to the best of my knowledge. They certainly all lack a sense of Nigerian history with regard to loans. A quick recall should help all of us.

When in 1978 General Obasanjo’s regime was considering taking a $2.78bn facility recommended by the International Monetary Fund, IMF, to boost economic growth, the Organised Private Sector, OPS, led by Chief Ernest Shonekan, GCFR, then Chairman/Managing Director of UAC, was in support. Some of us were not. The strongest argument the OPS advanced at the time was simple. Nigeria’s debt/GDP ratio was extremely low; the country was under-borrowed. The country would easily repay the loan. That was the clincher. Obasanjo took the loan in 1978. He returned to power in 1999 to find that $2.78b has not been retired. Instead, the debt stock had exploded to $36bn.

What went wrong? This is important because it should serve as a lesson to Buhari’s government and the officials presenting partial truth as the whole story. A small diversion should also help to drive home the point that Nigerian governments cannot always be trusted with loans – foreign or domestic.

Late Chief Ayo Ogunlade was Abacha’s Minister for National Planning. In 1997, he had a shocking revelation to make about the loans which were taken with promises to repay. According to him at a lecture delivered at the Nigerian Institute of International Affairs, NIIA, Lagos, ten per cent of the loans never reached Nigeria; they disappeared into various accounts abroad.

Fifty per cent went into uncompleted projects; thirty eight per cent went into projects which earned no returns on investments and only two per cent was allocated to ventures earning positive rates of return. Yet, Nigeria had to repay one hundred per cent of the loans with interest. A question will soon be asked of the spokespersons of the Buhari administration on the loans taken so far.


Nigeria’s debt was not easily repayable in 1978 as argued by the OPS and will not easily be redeemed from now on as the DG-DMO, Minister of Finance and Senator Udoma Udo Udoma are promising, for the simple reason that national loans are never discharged from the Gross Domestic Product. Loans can only be repaid and reduced from revenue.

The three have agreed that Nigeria’s revenue is low; they have implied our difficulty to repay exists unless revenue generation improves. But, they have not provided a plan to increase revenue. That is the “pie-in-the-sky” approach to economic management.

Nations managing their economies efficiently don’t wait or pray for income to increase; they plan and make sure it goes up. That is the only way they can rest, assured of paying their bills as and when due. This government has failed to do that. And, that is the problem.

Furthermore, a great percentage of the GDP of third world economies is not tradable and cannot be used to repay debt. For instance, Nigeria’s rural communities and the millions of subsistence level farmers contribute a significant percentage of the country’s GDP. But, hardly any of it leaves the community because they are consumed at the point of production. Even the value added portion is left on the farm.

By contrast few owners of mechanised farms in more advanced countries consume what they produce on the farm. So, they form part of the modern economy. Obviously, the FG is basing its assurances to Nigerians and the global community on faulty understanding of economics by its top officials. For us the debt/GDP ratio provides little comfort.


One of the strongest verdicts of economic history has taught us is that project-specific loans, especially those which are self-liquidating, have the best records of repayment. Yew made the point with regard to Singapore Airlines. “Singapore Airlines was 100 per cent government-owned, but, it was efficient and profitable because it had to compete with international airlines. We did not subsidise it; if it is not profitable, it would have to close down (p 315).”

Two things are clear from that example. Singapore Airline is creating jobs for hundreds of thousands of people directly or indirectly. It is not draining the public purse; so government has more money to spend on social welfare programmes that lift the people out of poverty. Finally, it is earning foreign exchange for Singapore instead of waiting for government or NNPC to generate the dollars. It reduces the exchange rate and strengthens its currency.

Obviously, Nigeria Air started out with the wrong model. It was bound to fail even if it took off in December 2018 as planned. Sirika would probably nominate as Chairman and Managing Director close friends. The airline was designed to drain government’s foreign exchange and it has now lost funds which could have gone to relieve poverty if properly utilised.

Most of the loans taken by Buhari are not project-specific, and even those that are, depend on government to repay the loans not on profitable operations. That explains why the debt/GDP ratio is so dangerously misleading. Underlying it is the assumption that the country can pile up debts without definite repayment plans and survive indefinitely. Nothing can be more false.


Let us return to Ayo Ogunlade briefly. The late Minister made the points that we were in a debt trap in 1997 because so many loans taken were not tied to any income generating project, some were never executed at all; others were unprofitable and could never be. Even then the debt/GDP ratio was highly favourable to Nigeria.

The reason the World Bank, the IMF, African Development Bank, even our own Central Bank of Nigeria as well as economists are worried about the huge loans taken since 2015 is because there is very little to show for it. There is no completed project repaying its loans and there is none in sight.

A good example is the railway system. Shortly after appointing Ministers the FG rolled out a plan to revolutionise the rail services nationwide including Lagos-Ibadan, Lagos-Kano, Lagos-Calabar. The first was promised to start December 2017. Today, there is no trace of it. Chinese loans were taken which have added to our debt burdens. Unless there is a long moratorium regarding commencement of payback, we might already be paying for railway services we will not enjoy for years to come – if ever. What stops another government from scrapping it? It has been done before.

Without income-generating projects, the nation is now borrowing just to fund consumption by government officials. There is little investment. Nothing demonstrates this fact better than the fact that the Minister of Finance announced in October that only N460bn had been released for capital expenditure – less than 20 per cent of the budget for the year. With less than three months to go in 2018, it is obvious that there has been very little capital   investment this year on which we can grow the economy in the next few years.

So, it is safe to ask: where are the projects which will help to repay the mounting debts?


Governments worldwide borrow. What separates those acquiring loans to improve on the welfare of their people and those who deepen their poverty is the deployment of the loans, strict adherence to efficiency and performance and accountability. Nigeria’s Minister of State for Aviation could not have lasted more than 72 hours after announcing that he had just flushed money down the toilet on an ill-conceived project called Nigeria Air.

Ultimately, the difference is leadership. Lee Kuan Yew would not have retained such a minister who did not know he should voluntarily resign his appointment. That is how Singapore developed and why Nigeria will not.     Nigeria borrows now to fund waste. That explains why we now have the largest number of poor people on earth. Another four years of this sort of governance and we will add 27 million more people to those living below the poverty line. When those living below the poverty line become the majority, who will repay the debt?

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