Your Excellency,

I hope this letter meets you well.
Like many fellow citizens, I have had serious concerns about your proposal for new loans totalling $22.7bn. Except for the concerns, I should be congratulating you on securing the Senate’s approval for the loans last week. You had sought the approval for four years.
Mr. President, I will be direct and brief, considering various affairs of state that are begging for your attention.
Except for those components that are in the 2020 Appropriation Act, I would implore you to not take the loans at all. The exception is simply to affirm the rule of law. But the total sum approved by the Senate last week is not law. Although you initiated the request, you need to ignore the approval and shelve the loans that are not part of the financing plan for the 2020 budget deficit.
You may view this advice as hard to accept. Indeed, those we could call the “loan hawks” in your administration might tell you that the loans are no longer only imperative, but that they are now urgently needed as well. I woke up yesterday to the news of the virtual collapse of crude oil prices. In one single day of trading in Asia, before the European markets opened – with the US market opening even later – the Brent Crude had fallen close to $30 per barrel.
The coronavirus (COVID-19) pandemic has depressed oil prices below the benchmark for the Nigerian 2020 budget. As the negative impacts of COVID-19 on the world’s economy and asset prices were projected to worsen, the reaction of the OPEC cartel last week was to cut supply. But with the refusal of Russia to cooperate, Saudi Arabia precipitated the price decline from around $50 a barrel on Friday by oversupplying the market. But the situation is more economic than geopolitical. In any case, the short-term outlook for oil prices, and consequently the Nigerian government revenue in 2020, are quite dim.
Mr. President, let’s assume that the loan request was granted in 2016 when you first sought it in the $30bn proposals at that time. How would we finance economic growth now, in the wake of a probable coronavirus-induced economic downturn or recession? Borrow more?
Mr. President, the first reason for my objection to your newly approved loan proposal is that the assumptions and economic projections made for the previous deficit financing by your administration (for mainly infrastructure development) have all fallen flat. Most tellingly, the Economic Recovery and Growth Plan (ERGP) projected real GDP growth rate to an average of 3.83% from 2017–2019. Instead, real GDP averaged 1.67 per cent in those years; it was 0.86 per cent on average in the four fiscal years (2016–2019) since your administration. Indeed, instead of 4.50% projected in the ERGP for 2019, actual growth was 2.27%.
Not only that. A lot of the infrastructure projects, including the new terminal of the Nnamdi Azikiwe International Airport, Abuja, which you commissioned in December 2018, have missed their completion dates and are not yet (fully) operational. This will continue to delay the realisation of the impacts the projects were supposed to have in the economy. In the meantime, the foregoing performance lapses have contributed to unemployment, which was last reported at 23.1% in Q3 2018. Figures for the subsequent quarters are not released, ostensibly because they would, at best, remain as high and embarrass your government.
The second reason you should not go ahead with the new loans is that the previous ones failed to deliver projected economic impacts because they couldn’t have. The multiplier effects of the spending belong in China from where the project loans were procured and from where the expertise, technology, materials and the substantial number of personnel are sourced. The notion of reflating an economy with infrastructure spending is not premised on foreign sourcing at the breadth that is associated with the key infrastructure projects of your administration.
Mr. President, no country has substantially developed its infrastructures by relying completely on debt (local and foreign), overwhelmingly on foreign technical knowhow (as exemplified by the halting of work on the Lagos-Abeokuta railway project because the Chinese workers are held back in their country due to coronavirus), and even technical skill for project development.
The only thing Nigeria brings to the table for most of our infrastructure projects is our putative need for them. A number of items in the new loan approval are all together for project development and policy reform – some technical documentation.
The third point I would like to make against the new loans is that they would compromise the country’s capacity to safely borrow after your administration. In under five years, your administration is set to experience two major oil price crashes. The first in 2015-2016 was devastating because the country did not have substantial fiscal savings to respond. You, rightly, complained about the situation then.
Mr. President, the country’s fiscal savings are now non-existent. From $2.1 billion in May 2015, the Excess Crude Account held just $70 million at the end of February 2020. The government after yours would meet a fiscal position of no savings and high debt, a worse situation than the one you complained bitterly about throughout your first term. Yet, the cycle of oil price crashes is frequent and the long-term outlook of oil prices is grim, owing to the transition in the energy market to renewable energy.
Mr. President, officials of your administration have continued to argue that the country can borrow more; they insist that our public debt is sustainable, because the public-debt-to-GDP ratio, at about 21% in 2019, is low. They shrug off analysis of debt sustainability that is based on the fact that debt-service cost is already gulping more than 60% of actual government revenue. Should oil prices average below $50 per barrel in 2020, this ratio would likely worsen.
But let’s consider even the debt-to-GDP ratio argument, using the borrowing record of your administration to make a 30-year projection of Nigeria’s debt and its sustainability. This exercise is fair to you. Between June 2015 and September 2019, Nigeria’s public debt increased by N14.1 trillion, according to data by the Debt Management Office (DMO). Total public debt stood at N26.2tr at the end of last September. If we continue to borrow N14.1 trillion every four years, an additional N99.5tr would have been borrowed by 2049.
Now let’s consider that in the first four years of your administration, utilising the hefty borrowing, real GDP growth rates averaged 0.86%. With the GDP at N122.6 trillion in 2019, according to World Bank data, and using your administration’s growth scorecard, the GDP would have grown to N158.5 trillion in 2049. Given the extrapolation of public debt, and overlooking June 2015 debt balance of N12.1 trillion, Nigeria’s debt-to-GDP ratio, give or take, would have climbed to 62.7% in 2049. At that time, and also based on your record with revenue generation and debt service, the country would have to borrow to pay the interest on its debt, leaving one to wonder where the fund for capital expenditure and non-debt recurrent expenditure would come from!
From the above scenario, it is clear the current debt-to-GDP ratio can be misleading in judging debt sustainability when your administration is on a borrowing binge. The projection of changes that such loans would be wrought on fiscal coordinates is important for consideration.
Mr. President, I promised to be brief and I will keep the promise. The loan hawks may argue that future governments will not have to borrow as much as your administration has had to borrow. When the infrastructure projects you are financing with debt are completed, they would increase the country’s infrastructure stock and we will not need to invest in such infrastructure again.
This is fallacious. The reasons for budget deficits are legion and can be ever-present. Apart from infrastructure, deficit financing could be for social safety nets and economic stimulus to fight a recession. As we saw with US President Donald Trump, the deficit can be fuelled by tax cuts to encourage consumption and investment.
The focus of your administration on funding infrastructure development has neglected the huge need for public investment in education and healthcare. Your successor administrations will have to pick up these slacks. With debt service as a percentage of government revenue remaining as high as it is today, the future government would have to keep borrowing.
In concluding, Mr. President, your fiscal policy will bequeath the future generations so much debt and the need to keep borrowing to fund part of debt service and the remaining budget. This prospect will severely dent investor confidence, ensuring the country cannot attract foreign direct investment.
This will be most unfair and very damaging to the younger and unborn generations of Nigeria. You should avert this sad prospect by abandoning the loan approval.
To address the looming economic headwind, Mr. President, what you need to do is unwind policies that are deterring foreign direct investment, open the borders, improve security and enforce the rule of law. The Central Bank of Nigeria also needs to close the wide gaps in the foreign exchange market.

Best wishes.
Yours truly,

Jide Akintunde
Managing Editor,
Financial Nigeria, and
Director, Nigeria Development and Finance Forum