- Desirable as it might be; the question is whether the government can manage it well
Last week, President Muhammadu Buhari requested the National Assembly for authorisation for $5.5 billion external loans. Of this, $3 billion is for re-financing domestic maturing debts and the other, the $2.5 billion Eurobond for the funding of the 2017 capital budget. Whereas the proceeds of the Eurobond issue is already anticipated to finance the deficit in the 2017 Appropriation Act, the US$3.0 billion, according to the president, is merely to re-finance maturing domestic debt and so “will not lead to an increase in the public debt portfolio because the debt already exists, albeit in the form of high interest short-term domestic debt”.
He specifically drew the attention of the National Assembly to the N1.663 trillion allocated to debt service in the 2017 budget, representing a whopping 32.73 per cent of the total expenditure, to underscore why the refinancing of the domestic loans has become imperative: “the substitution of domestic debt with relatively cheaper and long-term external debt will lead to a significant decrease in debt service cost. This proposed re-financing of domestic debt through external debt will also achieve more stability in the debt stock while also creating more borrowing space in the domestic market for the private sector”.
On the surface, it is hard to fault the Federal Government’s two-pronged approach to the debt issue. While the current realities dictate that the Federal Government be given the fiscal leeway to execute many of the projects considered as priority, particularly those with the ability to jumpstart the sluggish economy, so is the imperative to bring down debt service obligations to a level considered more sustainable when matched with the current revenue profile. Neither of the options in our view however, vitiates the general concerns about the debt trajectory, particularly in the context of our recent history of opportunistic conversion of the debt instrument into instruments of personal enrichment by officials. Or even the larger concerns with attendant risks associated with foreign currency-denominated debts.
It is therefore beside the point that the government, for the most part, is wont to anchor its position on the premise that the debt to GDP ratio, currently put at 17.76 percent compares favourably with its peers. At best, we see the idea of substituting one loan for another as merely seeking to deaden the psychological impact of unflattering statistics of revenue-to-debt servicing ratio which the Islamic Development Bank (IDB) representative in Nigeria, Abdallah Mohammed Kiliaki, sometime last year put at between 75 to 80 per cent. For now, it may seem pragmatic; only in the fullness of time will Nigerians begin to see it for the placebo that it truly is in the event of the failure of the Federal Government to shore up revenue.
Much of course has been made of loans as being something of an end in itself as against being a means to an end, which of course explains why the debate has been somewhat obscure. To be sure, Nigerians have long gone past the sterile debate about what needs to be done or even the scale of investment needed to match their ambitions as Africa’s so-called biggest economy. Their expectation is to see a Buhari administration which promised Nigerians a different path to getting things done, move swiftly to deliver on its key agenda of infrastructure renewal as a strategy to unlock the nation’s vast potential and to get the country working within the shortest possible time.
That Nigerians are still locked in the debate over the debt issue after more than two years in office would in part reflect their frustrations with the administration’s dilatoriness, particularly its snail-paced approach to governance and utter lack of coherent strategy on important matters of the day. Harder to imagine is that the $2.5 billion Eurobond request is part of a budget that has barely three months left to run its course.