Examining Nigeria’s external borrowing plans

Nigeria's finance minister, Kemi Adeosun, defended the country's recent decision to borrow $5.5 billion in external loans, stating that despite the borrowing, Nigeria is not in a significant debt crisis. The conversation around Nigeria's external borrowing plans has sparked debates on the implications of increasing debt levels and the effectiveness of the borrowed funds. Zeal Akaraiwe, CEO of Graeme Blaque Advisory, joined CNBC Africa to provide insights on the borrowing strategy and its potential risks and benefits. The discussion centered on key issues such as debt sustainability, cost of borrowing, spending plans, and the need to attract foreign and local investments. With Nigeria facing challenges in infrastructure development, healthcare, education, and other critical sectors, the focus is on whether the borrowing plans align with the country's long-term goals and economic growth prospects. The current scenario highlights the importance of prudent financial management, transparency, and accountability in utilizing borrowed funds and attracting investments. This article delves into the key themes and points raised during the interview, shedding light on the complexities of Nigeria's external borrowing strategy. Debt sustainability and the cost of borrowing emerged as crucial factors in evaluating Nigeria's external borrowing plans. Adeosun emphasized that debt itself is not inherently bad, but the key issue lies in how effectively the borrowed funds are utilized. While the debt to GDP ratio may appear relatively low, the burden of debt service to revenue poses a significant challenge. Nigeria's high expenditure on interest payments, particularly in local currency debt, highlights the urgent need for sustainable debt management and strategic investment in revenue-generating projects. Akaraiwe echoed the concerns, emphasizing the importance of reducing local currency interest rates to stimulate economic growth and minimize the reliance on external borrowing. The debate on external borrowing versus local currency funding revolves around the trade-off between interest rate differentials and exchange rate risks. With Nigeria's limited productivity and high recurrent spending, there are calls for a reevaluation of the spending plan to prioritize capital expenditure and infrastructure development. The recurring expenses drain resources that could otherwise fuel progress and development in crucial sectors like healthcare, education, transportation, and housing. The challenge lies in balancing the government's infrastructure investment with private sector involvement to drive sustainable growth. Transparency and accountability play a crucial role in building investor confidence, both locally and internationally. The recent court ruling mandating the disclosure of Senate spending highlights the need for greater transparency in governance to attract investments and ensure effective utilization of borrowed funds. As Nigeria navigates its external borrowing strategy, the focus remains on striking a balance between debt sustainability, prudent spending, and creating an enabling environment for investments to foster long-term economic growth and development.