President Muhammadu Buhari last week
wrote the National Assembly seeking approval to borrow $29.96 billion
under the External Borrowing (Rolling) Plan to address the
infrastructure deficit in the health, education, water resources and
other sectors.
The president’s letter, which was
read at plenary by the Speaker of the House of Representatives, Yakubu
Dogara, indicated that the $29.96 billion would be for proposed project
and programme loans of $11.274 billion, $10.686 billion for special
national infrastructure projects, Eurobonds of $4.5 billion, and federal
government budget support of $3.5 billion.
The president said the projects and
programmes under the external borrowing plan were selected based on
positive technical economic evaluations, as well as the contributions
they would make to the socio-economic development of the country,
including employment generation, poverty reduction and protection of the
nation’s vulnerable population.
Some of the funds from the external
borrowing plan would be deployed to emergency projects in the
North-east, particularly following the recent outbreak of polio after
the de-listing of Nigeria from polio endemic countries.
A breakdown of how the proposed foreign
loan would be disbursed showed that 61.2 per cent has been earmarked for
bankable infrastructure projects while social programmes in health and
education, the federal government’s budget support facility, agriculture
and the Eurobond issue account for the balance.
Also of the $29.96 billion to be
borrowed, the federal government will take up 86.3 per cent of total
borrowings or $25.8 billion, while the 36 states of the federation and
the Federal Capital Territory (FCT) will account for the balance of $4.1
billion.
Nevertheless, divergent views have
continued to trail the proposal by the federal government. While some
Nigerians believe the foreign loans would help lift the country out of
its present economic quagmire, some have said they would only jeopardise
the future of young Nigerians and could impose a huge debt burden on
the country reminiscent of the 1990s and early 2000s.
However, officials of the Ministry of
Finance have defended the borrowing plan, stating that under the
external borrowing strategy, 75 per cent of the funds to be borrowed
over the three years are at concessional terms with average interest
rates of 1.5 per cent and tenures as long as 20 years. Only $4.5 billion
comprise commercial fixed rates Eurobonds. Also, the International
Monetary Fund (IMF) recently advised Nigeria to borrow to get out of
recession.
One official, who preferred not to be
named, explained that with the current low revenues and oil price
outlook mean there are limited options to finance the capital
expenditure needed to stimulate the economy and get out of recession.
Fixed recurrent outgoings (despite the efficiency and payroll savings
are still N200 billion per month) while debt service consumes N120
billion monthly.
In addition, funds from the Federation
Account Allocation Committee (FAAC) receipts to the federal government
average N200 billion and it is even projected to be N300 billion, even
at full production (due to cash call arrears that were inherited), he
added.
“Currently much of the global markets
have negative interest rates and there is appetite for Nigeria’s paper
thus the federal government should be able to get a good deal for the
nation.
“Thus, the only option is for the
federal government to borrow in the short-term to return to growth and
then drive additional revenues to fund the additional debt burden.
“Indeed, the infrastructure investment
is expected to catalyse private capital into infrastructure and drive
productivity and economic growth. But in order to achieve this
objective, the federal government must ensure that the borrowed funds
are channelled into the fiscal levers that will drive growth,” he said.
This, he added, is to be attained by
ensuring that quality, revenue earning projects, such railway, power,
among others are funded. Project execution is also critical, as failure
to develop proposed projects would create a crisis.
This can be attained by tying the
borrowings to the projects and monitoring. The fiscal discipline to
ensure the borrowed funds do not end up paying salaries as in the past
is critical, the official explained.
“The efforts of the Efficiency Unit and
Presidential Initiative on Continuous Audit would be critical here in
reducing overheads and salaries, respectively,” he noted.
Also, the Director General of the West
African Institute for Financial and Economic Management (WAIFEM), Prof.
Akpan Ekpo, who is a former vice-chancellor of the University of Uyo,
has supported the plan to borrow externally.
“I have always said external borrowing
is what we need. Domestic borrowing is short-term and not flexible.
External borrowing is long-term and at concessionary rate(s). If you
look at what the International Monetary Fund (IMF) is doing – zero
interest rate.
“Our revenue is declining because of the
volatility in the oil market and our production has dropped
significantly because of the attacks on oil installations. So we can’t
avoid external loans if we are to revive the economy. We just can’t do
without it,” Ekpo explained in a phone interview yesterday.
However, the WAIFEM boss said if the
federal government succeeds, it must ensure that it puts in place robust
monitoring and evaluation mechanisms “so that the money doesn’t go into
wrong hands and end up not utilised for what it was meant for”.
“You can’t raise taxes now because we
are in a recession, you cannot sell assets now because they would be
sold as peanuts, so external borrowing is the way to go,” Ekpo added.
The proposed borrowing plan is
completely different from the Paris Club debt. Indeed, one of the
reasons the Paris and London Club debts became unsustainable was that in
the 1970s and 1980s, Nigeria booked floating-rate loans when LIBOR was
about four per cent, but when it was eventually re-priced above 10 per
cent, the country could no longer service its debt.
Also, prior to 2000, the debt management
functions were performed in various ministries, departments and
agencies – the Ministry of Finance, Central Bank of Nigeria (CBN),
National Planning Commission, etc.
There was then no focus of
responsibility. But today, the Debt Management Office (DMO) is now
responsible for managing the country’s debt – both domestic and external
under the guidance of a single minister, the Minister of Finance.
There have also been, in the last
decade, new laws enacted to focus on public debt management in order to
avoid the mistakes of the past. These laws include the DMO Act, 2003;
Fiscal Responsibility Act, 2007; and the Public Procurement Act, 2007.
Under the new professionalised
institutional arrangement, there are relevant technical analyses for
advising on, monitoring and managing public debt. These include the
annual Debt Sustainability Analysis (DSA) and Medium-Term Debt
Management Strategy (MTDS) prepared by the DMO under the supervision of
the Minister of Finance, in collaboration with other relevant
ministries, departments and agencies (MDAs) – CBN, Ministry of Budget
and National Planning, NBS, OAGF, with technical support from WAIFEM.
Accordingly, a nation that is highly
dependent on oil exports but wasted high oil revenues of the past six
years and did not spend the funds on infrastructure, has no alternative
strategy other than to borrow to meet its wide infrastructure deficit.
The nation cannot afford to wait for oil prices to rise again in order
to fix infrastructure because Nigeria is already in a recession and so
doing nothing is not an option unless the nation is prepared to endure a
prolonged recession.
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