On Tuesday the Senate reconvened from the COVID-19 lockdown recess to consider the Federal Government’s request for a$2.36 billion (850 billion naira) loan to be raised from the domestic capital market to fund the 2020 budget.
President Buhari had justified the loan request to the Senate in order to replace previously approved external loans whose conditions are not conducive to borrowing especially in these times of the global economic downturn as a result of the COVID-19. It would be recalled that before the pandemic forced a global economic shut down, the Senate had approved foreign borrowings of $22.7 billion for the Federal Government.
In addition to this request, the Federal Government is also seeking a total of $7 billion in emergency loans from the International Monetary Fund (IMF), the World Bank and the African Development Bank ADB.
On the very day that the Senate was considering the request for the domestic loan, the IMF Executive board approved Nigeria’s request for emergency financial assistance of $3.4 billion under the Rapid Financing Instrument (RFI) to meet the urgent balance of payment need sarising from the COVID-19 pandemic.
The Minister of Finance and Budget and National Planning, Zainab Ahmed, justified this request on the fact that with the sharp contraction in oil prices occasioned by the COVID-19, there is likely to be an immediate and severe economic disruption in the country. The loan is therefore needed to support the short fall in the 2020 budget.
The minister further explained that the Nigeria is taking advantage of the IMF provision which accords member states the right to draw down fifty to hundred per cent from their contribution to the fund during emergencies such as the current COVID-19 pandemic.
We note that in addition to the loans from the domestic and multilateral agencies, the Federal Government has also sought loans from the China for several infrastructural projects.
It is a source of worry that the IMF facility is tied mainly to cover potential balance of payment deficits. What this means in simple terms is that we are borrowing to pay debts that we are likely to owe arising from projected low revenue due to falling oil prices.
A further danger we see in these loans is that though on a time scale they are targeted to address the immediate issues arising from the COVID-19, we are however by the conditionalities of the loan committing ourselves to possibly reintroducing the Structural Adjustment Programme (SAP) whose consequences are of long term effect.
In this regard we run the risk of exacerbating the very conditions which we seek to escape from by going for the loans in the first place.
While there is no doubting that the COVID-19 has already caused some disruptions to the economy with a potential to cause even more if it persists, it is however necessary to state that in a bid to tackle the situation, the government must tread with caution. We admit that the resort to loans from both domestic and foreign sources is a necessary way which governments including Nigeria finance critical development initiatives.
But this must be guided by prudent management of such loans and the need to ensure that they are targeted at projects that help to accelerate growth and development. It is sad that this has not been the case with Nigeria where the loans we have borrowed in the past have often been frittered away on white elephant projects and intervention schemes of dubious nature.
In our bid to secure the loans, we should be careful what we are letting ourselves in for. It took the coming of the Obasanjo administration for us to painstakingly negotiate our way out of debts accumulated by governments before him. It was also just a couple of years back that we exited recession which was a consequence of the profligate years of the past.
Let it not be that in our attempts to resolve the challenges of today, we neglect the painful but instructive lessons of yesterday, thereby consigning ourselves to an uncertain future.
