The Nigerian government has reintroduced a request to the National Assembly to borrow up to $22.74 billion from the international markets.
A request placed for a railway construction project which seems to raise a lot of eyebrows to the state of the countries financial records.
Reports state that since 2015, the fiscal revenues flowing to the government has under-performed by 45%.
Crude oil and gas revenues, make up about 45% of the total revenues but 70% of foreign exchange earnings; however, the obligations of the government including mandatory obligations e.g. Salaries and Debt Service, have eaten up 100% of the crude oil revenues.
This only means that government must run a deficit budget to fund capital projects and other obligations; the 2020 annual budget, for instance, is budgeted at N2.18 trillion deficit financing.
The GDP to tax revenues ratio of the government, according to the Organization for Economic Co-operation and Development (OECD), a grouping of the world’s leading market economies, was put at 6% as at 2016 (The World Bank measures at 3.4%).
Compared to Kenya and Ghana at 18% each, and South Africa at 29%.
This leaves the government with borrowing as the only real solution to raise revenues.
Government has been financing her fiscal deficits by issuing Treasury Bills for shorter duration and Bonds for longer.
These instruments have interest costs from 9% for Treasury Bills to almost 15% for long-dated bonds.
Government however has issued Eurobonds at much lower interest cost, e.g. the 2025 Euro bond was issued at a coupon of 7.62% but payable in USD not Naira, thus incurring foreign exchange risk.
However, government is also looking at concessionary and bilateral loans which are not issued at commercial rates.
There is a need to borrow for capital projects, because government tax revenues are low and oil revenues are already spoken for.
Government is also seeks to borrow in foreign currency because cost of foreign currency obligations is lower than locally issued debt instruments.
Experts are of the opinion that government can only justify such an amount by simply put out proposals to the private sector to enter partnerships to develop such weighty projects on Public-Private Partnerships.
This will only mean that projects that have a revenue basis will be approved.
Though Loans may come, but it will no longer be on the government balance sheet since it will be established that railways can be built, owned and operated by the private sector, with strong government support.