The Nigeria Independence Group (NIG) has strongly faulted plans by the Federal Government for a $29.5 billion loan purportedly to finance the country’s budgets.
The group, a socio-political think tank, made this position public through a statement by its Convener, Professor Akinyemi Onigbinde.
According to the NIG, the proposal is in the aftermath of the public rejection of the Muhammadu Buhari administration’s plan to sell off some national assets, including the robust and money-yielding Nigeria Liquefied National Gas (NLNG) Limited, an action that would have put the country on an irredeemable path of economic destruction.
While noting that there is nothing fundamentally wrong in seeking credit facilities, the NIG insisted that that course must be for revenue-yielding projects such that the repayment is embedded in its operations, and not to satisfy the large ego of those currently at the helm of affairs.
The NIG is particularly worried by the sheer size of the loan being sought, when the federal administration has in real terms continued to balloon the nation’s recurrent expenditure profile.
It observed that, as at June 30, 2016, Nigeria‘s domestic debt stock stood at 10.6 trillion naira (N10, 606, 334, 215, 592, 50), with the Federal Government bond being N7 trillion. This means that the FG’s bond stands at 70.46 percent of the total debt stock.
According to the Debt Management Office (DMO), this excludes the sum of N680.42 billion issued to restructure state debts.
Between March 31st 2016 and June 2016, the debt stock moved from N9 trillion to N10 trillion, a staggering N1 trillion increase. As at June 2015, when the Buhari government took over power, the country’s debt stood at N8.3 trillion, with the Federal Government accounting for N5.3 trillion of the total sum. Today, Nigeria‘s external debt stands at $11 billion, $2 billion higher than what was inherited; adding another $30 billion to the debt stock is beyond belief, the group added.
Upon the exit of the Paris and London club of lenders, Nigeria’s external debt came down to a manageable $3.5 billion as at December 31, 2006. In essence, there has been over 200 percent increase over the last ten years in external debt alone, with little to show for it. It is for this reason that there is apprehension in some quarters that the borrowing option being considered by the federal government portends a grave danger for the country.
The federal government has moved to allay such fears, arguing that the debt-to- GDP ratio remains reasonable. Also, it has argued that the loans being sought are long term, low interest finance that will help in infrastructural financing.
But that is just one side of the story.
The 2016 budget presented and approved by the parliament has about 25 per cent component earmarked for debt servicing. Close to 40 percent of expected revenue will go into debt servicing. As things stand, the country’s external debt remains moderate, unlike the domestic debt that is at all time high. If the proposed loan facility of about 30 billion dollars is accessed, however, it will alter significantly, the internal /external ratio of the country’s debt.
It is worthy of note that this loan is exclusive of the 15 billion dollar advance sale of oil to India, and the earlier 9 billion dollar loan in bonds and other financial instruments. What this implies is that in less than three years of the present administration, a whopping 54 billion dollars would have been added to our external debt stock, thereby taking the country well beyond the pre-Paris and London clubs debt level.
Such a huge level of indebtedness is unsustainable, and is likely going to lead to debt rescheduling at higher rates. When that happens, the nation will be further compelled to resort to the sale of national assets to balance its books.
The loan facilities being sought by the present government are therefore not only unprecedented but also difficult to sustain. It will only compound the nation’s economic woes a few years down the line, thus imposing an even harsher economic burden on the citizenry. This is even more so when all that seems to have changed in the battle against corruption is the famed body language of the President.
Beyond the TSA, whose extent of effectiveness is still in contest, there are no reassuring institutional reforms that block leakages, theft, overpricing, and other forms of corruption that turn public expenditure into a milking cow for politicians, contractors and civil servants.
So far, the federal government has also not disclosed the conditions attached to the loan being sought. Historically, lenders often present a list of conditions under which they can reasonably guarantee the safety of their funds. One is, thus, left to wonder why the government has been silent on this aspect of the loan deal. One would like to know for instance, if the rumored increase in the price of fuel, electricity tariff and other burdens being proposed for imposition on the impoverished citizens are all parts of assuring the lenders about the safety of their funds.
More worrying is that government has been unable to provide a detailed cost analysis of the project for which the loans are being sought. This is a very important omission, for which reason the parliament has returned the proposal to government. While Keynesian economics has largely been proven right as to the benefit of spending to grow an economy in contraction, such as we are currently experiencing, the panacea is not without qualifications. Spending can only bring about the desired result when targeted towards carefully identified productive investments capable of directly or indirectly facilitating the repayment of such loans. The opaqueness of the debt business, especially in a low-producing economy such as Nigeria’s, leaves much to be desired.
It is also important to ask if the government has carefully considered all the options open to it as it seeks to access resources for stimulating the flagging economy. For instance, it has long been argued that the size and cost of governance is one major factor why there are so little resources left for productive expenditures.
Before plunging the nation into this avoidable debt therefore, it is important to ask why no effort is being made to fundamentally alter the structure of governance for greater efficiency on the one hand, and cost minimixation on the other. At the centre of this are the humongous emoluments of political office holders at all level of governance, from the local to the federal.
The NIG is convinced of the need to review the structure of governance in this country as a fundamental way of eliminating waste. The federal government more specifically is an over bloated behemoth which needs to shed weight by devolving more power and resources to the lower tiers of government on the one hand, and trimming down on its own basic, though fundamental duties, on the other.
We also need to revisit the desirability of an expensive presidential system with a bicameral legislature within a truly federal system where the central government has fewer responsibilities.
It is equally important in the immediate, for government to consider other financing options for critical infrastructure projects, rather than borrowing wholly to finance them. There are funds across the globe that can be attracted for projects considered critical to economy growth, provided the government is willing to create an enabling environment. In this wise, it is important to improve the investment climate for competition and mutually benefitting returns in the area of oil and gas, review the process of land acquisition, copyright and patent, contract enforcement, ease of doing business, and guarantee a secured, stable polity.
If government can do these in a well-articulated manner, and put in place a strong, clear-headed and focused economic team, a significant chunk of the loan being sought will come into the country in the form of investment.
The present approach suggests very strongly that the government is yet to appreciate the need for a marked departure from the political and economic structure that has over the years sustained the cycle of underdevelopment in the country. The attempt to continue to throw money at problems while avoiding necessary, though tough, choices is both delusional and cosmetic.
The NIG, therefore, urges the political class to articulate, very urgently, a holistic approach to the current economic crises by seizing the opportunity it presents to address issues bordering on the structure and cost of governance, institutional reforms that encourage and attract funds needed for infrastructural development as a way of further catalysing productivity, and the needed knowledge-based investment in education and training.
The current challenges require bold choices that offer a clear departure from the worn, ineffective efforts of the past. The human and material potentials of the country give enough reason to hope for sustainable development sooner than later if the leadership gets its act right.
