Nigeria Returns To Debt Era?

The wide-spread approval that greeted the rejection of President Muhammadu Buhari’s$29.96 billion loan request by the Senate was not surprising to many. In appraising its implications on Nigeria’s economy, COBHAM NSA and CHINYERE OBIORA note that public aversion to loans is essentially due to past experiences where borrowed funds were grossly mismanaged by military and political leadership alike.

Without doubts, accusations have over the years trailed Nigerian leaders at all levels of government for shamelessly diverting funds borrowed for development purposes. Regrettably, these huge resources were manipulated and laundered to satisfy a few individuals’ inordinate greed for opulence and massage their bloated egos at the people’s detriment. Riding on the likely implications of the loan on the Nigeria’s economy under biting recession, scathing criticisms that have dodged Federal Government’s moves to secure a $29.96 billion for infrastructure development were quite expected. It has been mixed reactions on the need or otherwise of the facility, which the Presidency, without any accompanying details, says would be expended on infrastructure, agriculture, health, education, water supply, growth and employment generation, and poverty reduction through social safety net programmes, among others. But critics have flayed government’s seeming inability to pro-actively handle matters of the economy so far. Drawing the ire of many financial analysts is the fact that the Ministries of Finance and Budget and National Planning, as well as the Debt Management Office, only commenced detailed work on the loan after the request was effectively dumped by the Senate for lacking in depth and explanatory notes. Though some experts argue the loan may drag the country into another period of financial captivity, clarifications by the Presidency justifying its request have, however, enjoyed the understanding of many who believe borrowed funds in this recession will assist turn around the fortunes of the nation’s economy. Nevertheless, these positives have not eased fears in certain quarters that foreign loans may create new financial challenges for the country’s future. Expectedly, stiff oppositions to the loan have come from recognizable frontiers like former President Olusegun Obasanjo, Vice Chancellor of Veritas University (the Catholic University of Nigeria), Professor Mile Kwanashie and the self-made opposition leader, Governor Ayo Fayose of Ekiti State among others. For Chief Obasanjo, who is still protective of his Paris Club debt exit legacy, kicking against the $29.96 billion loan is natural. The former president reportedly told members of the National Patriots’ Movement of Nigeria (NPMN) of his opposition to loan as well as readiness to engage the Federal Government frontally should it go ahead to obtain the loan that could have far-reaching negative effects on the nation and its tottering economy. In 2005, Chief Obasanjo successful negotiated with Western nations to write off $12.5 billion foreign debt to the Paris Club, a body of European creditors during his tenure. Also countering support for the loan, Vice Chancellor of Veritas University, Professor Mile Kwanashie praised the Senate for rebuking the Presidency over its failure to attach detailed outline of the borrowing plan. Hear him, “For once the Senate did something that is commendable by asking the President to provide information on how the loan would be spent. Looking at it from a technical point of view, there is varying answers on the matter. Sometimes you ask a question and you expect a straight forward answer. That is not always the case.” He admitted that it is difficult to fault government’s argument of needing money to embark on massive development in infrastructure and also stabilizing the exchange rate. But on the flip side, “Let us also look at it from another perspective. Historically, let us ask ourselves, this is not the first time we are borrowing. In the past have we been able to use borrowed funds to unlock the potentials of the economy? People will readily respond in the negative. So, why should it be different now, they will ask you. They are just going to increase our debt stock and also increase on debt servicing in the couple of years ahead and leave us empty handed. Why should we take the money? So, if the government now comes and tell Nigerians that all past government were not serious in using borrowed funds to unlock the potentials of the economy, but that the present administration is serious, do you think Nigerians will believe the government?” Typical of Governor Ayo Fayose’s punchy style, he sees nothing good in the government’s request and the Senate must stop the loan at all cost. The Governor while advancing reasons for opposing the plan in a presentation titled: “Journalism: Antidote to Economic Recession”, said borrowing such huge amount for infrastructures financing will plunge the country into depression and inflict untold hardship on the citizenry. He also chided the Senate President, Senator Bukola Saraki for a body language that seems to support the loan, arguing that the loan would push the economy from recession into depression. Mr Fayose further warned that, “any attempt to subvert the wishes of Nigerians, who had rejected the proposition, would amount to a betrayal of trust.” “We are 80 per cent close to depression. We must pray that Nigeria should not go into depression finally next year… I have seen the body language of Senator Saraki that he is planning to hit the gavel in support of external borrowing. I want to warn that the National Assembly must not kill Nigerians perpetually”, the controversial Governor said. Another angle to the raging loan debate is the suggestions by some experts that government should deploy to positive development use a sizeable chunk of funds reportedly recovered from alleged corrupt politicians in the last political dispensation or in the alternative, rely on friendly sources to raise the loan internally. However, this position is not attractive to some analysts whose concerned is about the wisdom in accessing such loan when government has already been weighed down by huge domestic debts to local contractors. Backing the proposition is the Managing Director, H.J. Trust and Investment, Mr Harrison Owoh who said arguments regarding foreign loans for infrastructure development in the country notwithstanding, it would be better for government to borrow locally because external borrowing would be affected by high exchange rate, thereby risking soaring repayment rate for Nigeria in future. “It would be better for the government to raise money internally through issuance of treasury bills and bonds because external borrowing would mount pressure on foreign currencies which we do not have”, Mr Owoh said, cautioning that the plan loan, added to billions of dollar external debt that Nigeria currently owes, are capable of taking the country back to the dark days as a debtor nation, just as he said that, “apart from the previous debt and the recent plan to borrow $29.96 billion, government had earlier secured loans from other foreign institutions to fund 2016 budget. All these loans will in future create more problems to the extent that Nigeria may use almost 50 per cent of its budget for the repayment of external debt”. Promoting alterative revenue sources, Owoh said internally generated funds are necessary part of economic diversification and creating conducive environment for both local and foreign investments, while government also work at raising funds through taxes because, apart from civil servants, almost 80 per cent of Nigerians do not pay taxes. Contributing to the debate, Chairman of Pension Fund Operators (PenOp), Mr Eguarekhide Longe said with people yet to have full details of loan plan, “we should be very careful not to create more problems for ourselves. Borrowing is good as it will help to revive the nation’s economy if it is well invested. But government should not borrow more than its capacity because such loan would bring another round of hardship if we fail to pay back at the stipulated period. So, before borrowing, we must have made adequate repayment arrangement.” For Mr. Chigbogu Nwabueze, a financial analyst, his fears are the possibility of mismanaging the loans even as he queried government’s likely repayment plan. “It is good that the loan is coming at very low interest rate of about 1.5 per cent or so. But my concerns are the sources of fund to pay back at the end of the day. “Nigeria is still witnessing crisis in many areas, including the Niger Delta violence; bombing of pipelines; insurgency in the North and low oil production level. All these variables raise questions on how the loan would be paid back as agreed. Therefore, government must put things in order and we also need to ask ourselves: is the economy diversified to generate revenue from other sources? The projects we planned to invest the money on, will they generate income and how? These are issues that should be considered before we go a borrowing,” he counseled. A sympathetic view also came from an economist, Mr Deji Adewale, who said borrowing for investment rather than consumption, would positively impact the economy and engender growth, adding, “If the Federal Government borrows for development, it is good and realistic, but borrowing for consumption is counter-productive to the economy.” Adewale said since the expected revenue in 2016 budget was inadequate to cover recurrent expenditure; government is hard pressed to depend on domestic and external borrowing as the way out of its financial quagmire. He warned government against borrowing from the nation’s banking sector because such development would put more money in circulation, thereby worsening inflation. In four months stretching from June 2016 to September 2016, Nigeria’s debt profile has spiraled from $11.26 billion to $13.5 billion, representing an increase of 20.5 per cent for the period under review. Available statistics indicate Nigeria’s debt profile took such an exceptional bound due to the current economic recession that has imposed over $2.2 billion deficits on the 2016 budget, However, Director General of DMO, Dr Abraham Nwankwo, recently explained that, “Nigeria’s debt profile is still within the expected range of a developing country and in recession too; the US, despite its strong economic status, still runs its economy on deficit.” However, experts said if there is no check on the penchant for loans, Nigeria would soon add 40 per cent to its present loan profile, and mortgage the economy for a long time to come. But Nwankwo disagrees with such postulation, insisting in a presentation on “Public Debt and the challenge of financing Nigeria’s economic recovery”, that Nigerian debt level is highly sustainable, saying there are lots of idle potential, which the administration seeks to harness for economic growth. He said while comparative tax revenue to Nigeria’s GDP ratio is less than 7.0 per cent; its peer group has a ratio of 18 per cent, stressing that to address existing huge infrastructure deficit speedily and effectively, government must develop infrastructures facilities, especially roads, power, rail transportation and ICT base as well as social infrastructure like education and health. Furthermore, backing those saying it is imperative to access foreign loans, the DMO boss said external borrowing is more favourable as the country can always access funds at lower interest rates compared to funds on the domestic scene with higher inflation and interest rates. Also, support for the loan came from Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf. He said addressing infrastructure concerns is crucial in driving the economy to stability. “To me, borrowing from World bank is not a bad idea because the loan is very concessionary in the first instance. The facility can be used for infrastructure investments. Besides, government alone cannot fix the existing infrastructures gap and even with the loan, there is still need for private sector’s complements to it.” Going by President Muhammadu Buhari’s letter to the National Assembly, “The total cost of the projects and programmes under the borrowing (plan) is $29.96 billion made up of proposed projects and programmes loan of $11.274 billion, special national infrastructure projects, $10.686 billion, Euro bonds of $4.5 billion and Federal Government budget support of $3.5 billion.”