When Bola Tinubu assumed office as Nigeria's president, he pledged to break the country’s reliance on borrowing for public spending. This commitment, made on August 8, 2023, during the inauguration of the Presidential Committee on Fiscal Policy and Tax Reforms, raised hopes for fiscal prudence and economic stability. However, less than a year later, Nigeria's borrowing has surged dramatically, with over $8 billion borrowed from external sources and N20 trillion from the domestic debt market. This stark deviation from Tinubu's vow not only undermines his credibility but also poses severe implications for Nigeria’s economic future.

The Legacy of Debt

Under former President Olusegun Obasanjo, Nigeria achieved a significant milestone by exiting a crippling international debt burden. Through strategic negotiations and repayments, Obasanjo managed to secure debt relief, providing Nigeria with a much-needed fiscal breathing space. This achievement was a beacon of hope, suggesting a path toward sustainable economic management and growth.

However, the administrations that followed have steadily reversed this progress. Former President Muhammadu Buhari's tenure saw a resurgence in borrowing, and now, under Tinubu, the situation has escalated alarmingly. The World Bank loans alone, totaling $4.95 billion, cover sectors ranging from power and women’s empowerment to education and renewable energy. Additionally, an oil-backed loan of $3.3 billion from the African Export-Import Bank (Afreximbank) has further swollen Nigeria’s external debt profile.

Domestic Borrowing Surge

Domestically, the scenario is equally concerning. The Federal Government’s borrowing from local investors has skyrocketed to N20.1 trillion, marking a 117% increase from the previous year. This borrowing, facilitated through instruments such as FGN Bonds and Nigeria Treasury Bills (NTBs), has been driven by a high-interest rate environment. The average interest rate on NTBs rose to 9.1%, and on FGN Savings Bonds, it climbed to 17.91%. Such rates indicate a heavy burden on the nation's finances, exacerbating the cost of debt servicing.

Economic Implications

The implications of this borrowing spree are dire. Nigeria's external debt servicing payments nearly doubled to $2.19 billion in the first five months of 2024, compared to $1.12 billion in the same period in 2023. This rising debt burden could divert critical resources from essential sectors such as healthcare, education, and infrastructure, worsening socio-economic conditions.

Moreover, the increased borrowing costs are likely to fuel inflationary pressures, prompting further interest rate hikes by the Central Bank of Nigeria. This cycle of rising costs and interest rates can stifle private sector investment, making it more expensive for businesses to access credit. Consequently, economic growth could be stunted, and unemployment may rise, intensifying social unrest.

The Path Forward

President Tinubu’s administration must urgently reassess its fiscal strategy. Instead of resorting to borrowing, the government should focus on enhancing revenue generation through robust tax reforms and efficient public spending. The Presidential Committee on Fiscal Policy and Tax Reforms, tasked with achieving an 18% tax-to-GDP ratio within three years, must deliver tangible results. Strengthening tax collection mechanisms and broadening the tax base (not imposing new taxes) can provide sustainable revenue streams, reducing the need for excessive borrowing.

The government also needs to reduce to the barest minimum the oil thefts in the Niger Delta that have made it impossible to meet Nigeria’s OPEC+ quota of 1.5 million barrels per day. This huge revenue leakage must be blocked.

Additionally, transparency and accountability in managing borrowed funds are crucial. Ensuring that loans are utilized effectively for development projects can mitigate some of the adverse impacts. However, without a strategic shift away from borrowing, Nigeria risks falling into a debt trap that could take decades to escape.

Conclusion

Tinubu’s broken promise on borrowing highlights the urgent need for a disciplined and sustainable fiscal policy. The current trajectory of mounting debt threatens Nigeria’s economic stability and future prosperity. It is imperative for the government to chart a new course that prioritizes revenue generation, prudent spending, and long-term economic planning. Only then can Nigeria hope to avoid the pitfalls of perpetual debt and build a resilient economy that benefits all its citizens.