The rebuff by the Senate of the Federal Government’s request to borrow $29.96 billion provides a fresh opportunity for the plan to be subjected to intense scrutiny by all Nigerians. Representing by far the largest loan package in the country’s history, such a transaction should normally be accompanied by thorough debates and feedback. The critical questions that must be answered are the full details of loans, the projects to be funded, repayment and sustainability of our rising debt profile.
The Senate rightly anchored its refusal to consider the proposal on lack of sufficient details. In other democracies, the proposals would have been well articulated to the diverse stakeholders, including legislators, the private sector, labour and civic groups as well as professional cadres. No government should contract such a humongous loan that has 20-30 years repayment spread without providing details, cost-benefit analysis and persuasive communication.
The imperative of foreign loans to help jump-start an economy in recession is incontestable. Let’s face it, the economy is not working. Gross Domestic Product is predicted by the International Monetary Fund to contract by 1.8 per cent by year-end after similar contractions for three consecutive quarters. Following the Keynesian model, governments favour increased public spending to boost consumer demand, jobs and production.
For Nigeria, with its poor infrastructure, weak industrial and export base and depressed agriculture, but having a large labour pool and largely undeveloped mining sector, the ideal should be a careful mix of borrowing, Foreign Direct Investment and business-friendly policies.
The groundbreaking loan package outstrips all before it in the volume and range of projects. A sketchy breakdown indicates that 61 per cent is planned for power, rail, and other infrastructure projects. Some $4.5 billion is for a Eurobond, $3.5 billion to fund the federal budget deficit, $2.2 billion for education and health, while $4.1 billion is for the states, among others. In his covering letter to the National Assembly reported in the mass media, President Muhammadu Buhari explained that projects under the borrowing plan were selected based on “positive technical evaluations” and their impact on employment, poverty reduction, and protection of the vulnerable.
Many Nigerians are, however, understandably anxious, given that it dwarfs the country’s existing $11.26 billion external debt as of June 30 and the potential for this to rise when the latest and other yet-to-be consummated borrowings come in. Our national track record in debt management is dismal and while this government may pride itself on prudence and does not indulge in the unbridled treasury looting of its immediate predecessors, it cannot determine whether its successors will be prudent or will meet its debt repayment obligations. One report says it was loans amounting to less than $2 billion that ballooned to $35 billion and necessitated a painful debt relief exit in 2005/6 that saw an $18 billion payout from external reserves.
Experts warn that high external debt is generally considered harmful, especially for economies with weak structural base. The United Nations Development Programme emphasises sustainability – the level of debt which allows a debtor country to meet its current and future debt service obligations in full without recourse to further debt relief or rescheduling. The World Bank/IMF template says a country can achieve external debt sustainability if it can meet its debt service obligations in full sans rescheduling or accumulation of arrears “and without compromising growth.”
Abraham Nwankwo, Director-General of the Debt Management Office, believes the debt is sustainable, citing its 1.5 per cent interest, repayment spread over 20 to 30 years, as opposed to the Paris Club of creditors debt with floating rates as high as 18 per cent; and the expected benefits to the economy with the bulk going into infrastructure. We are sceptical of his optimism. Are there no other viable options in jump-starting the economy?
Our preference is for loans to be restricted to economically viable capital projects and accompanied by urgent policy reforms that would liberalise key sectors of the economy. For instance, the huge loans the government is taking for rail and power would not be so high if only we had thrown open these sectors to foreign private investment. Will all those rail lines make money and pay their way? Projects here tend to be driven by politics instead of rational economic considerations. We hope the stated intention of locating projects in every state is not pandering to the self-defeating and much-abused federal character mantra. The parliament should not accept imprecise requests such as the $6 billion earmarked for “others.” Projects should meet the criteria of strategic heavy infrastructure, potential for massive job creation, poverty alleviation, export and stimulating the productive sectors.
New loans should form part of a much-needed stimulus and should be guided by an Act just as Barack Obama’s American Recovery and Reinvestment Act 2009 powered the United States out of recession. Here it will prevent the diversion of loans into private pockets as so often happened in the past. Without a focused, urgent privatisation, targeting top-rated global players, the much-needed FDI will elude Nigeria and loans can easily lead to another debt trap.
The government would do well to learn from the Lagos State template, which set up a standby loan repayment fund to be utilised in meeting debt obligations when recurrent revenues fall consistently. Legislators must demand full details as should other segments of the society. The reality is that our economy is weak: South Korea’s external debt of $425.22 billion or 37 per cent of GDP; India’s $485.22 billion or six per cent of GDP; and troubled Brazil’s $428.35 billion or 15 per cent of GDP are easier to manage because of their better infrastructure, strong institutions and robust exports, contrasted with Nigeria’s weak institutional framework and reliance on the declining oil and gas sector for export revenues.
The choices ahead are not easy; the times however require clear-headed thinking, planning by the government and patriotic rigour from the National Assembly.
