Reps approves Buhari’s ₦850 billion loan request

.. private lenders have been a more secure and efficient source of federal borrowing over the years.
House of Representatives in Session

The House of Representatives accepted President Muhammadu Buhari's proposal to include $850 billion in loans to fund part of the 2020 budget.

The Senate also gave its nod about fortnight ago to the President's proposal for borrowing program.

Approval of the House came after Buhari wrote the Green Chamber requesting approval for the 850 billion loan to be borrowed from domestic markets "to fund critical capital projects in the 2020 budget." The House set up an ad hoc committee led by House Leader Alhassan Doguwa at the time. It recommended acceptance of the President's request in the report laid down by the committee Tuesday.

The committee recommends the House to “approve the request to raise ₦850 billion in the new external borrowing plan in the 2020 Appropriations Act in naira from the Domestic Capital Market,” the report read.

‘Public disapproval’

Both legislative houses' approval of the loan has come in with public backlash.

The Buhari-led government has maintained that when it considers its debt-to-GDP ratio, Nigeria has not exceeded its borrowing threshold.

However, some have argued that the debt-to-revenue ratio in Nigeria is too restrictive to pick up new loans, as debt servicing is around a quarter of the 2020 budget.

Yet the decline in the price of oil and its collapse in demand due to the devastating pandemic of coronavirus has made the 2020 budget a mere wish list.

Although some main budget projects were connected to foreign loans, the devastating impact of the coronavirus pandemic on the global economy , particularly on the international capital market, made the federal government re-evaluate its year-long borrowing plans.

Part of the outcome of the re-evaluation, said Patience Oniha, Director-General of the Debt Management Office, was to agree to collect some $850 billion from domestic sources, previously accepted as foreign borrowing.

“This conversion from external to domestic borrowing is to ensure that the implementation of the 2020 Appropriation Act is not jeopardised by lack of funds.

“Thus, the ₦850 billion is not new or incremental borrowing, rather it is an amendment of the source of borrowing from external to domestic sources,” the head of the debt management agency said.

Meanwhile, private lenders have been a more secure and efficient source of federal borrowing over the years. This is due to their low interest rate, longer repayment moratorium and how MSMEs are saved from being squeezed out of the few available funding opportunities to expand their businesses and economy.

In the case of Nigeria, options are limited on the heels of the bleak impact on the international capital market that the coronavirus pandemic has had. Despite the global economy inching towards a big recession level, nations have been forced to turn inward to remain afloat.

As of September 30, 2019, Nigeria's growing debt profile is set at around $26.2 trillion. Of this number, total domestic debt amounts to about 18 trillion, or 68.45%.

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