Goddy Egene writes that the opposition to the federal government’s $30 billion external billion borrowing plan may not be because of Nigeria’s inability to repay but the fear of mismanagement of the funds
The federal government’s determination to develop the nation’s infrastructure is not in doubt considering the fact that improved infrastructure will have massive impact on the growth of the economy. One of the factors responsible for the poor performance of the economy is the decayed infrastructure, ranging from roads, power and other public utilities. This is why the federal government is working to ensure that the state of the infrastructure is improved to aid economic growth.
However, given the low revenue coming from oil, the government has decided to borrow to executive its development programmes, especially infrastructure in various parts of the country.
This objective made President Muhammadu Buhari to send a proposal to the National Assembly to borrow $29.96 billion, which is over N9trillion. This is the largest external loan in Nigeria’s history. The borrowing comprises projects and programmes loan of $11.274 billion; special national infrastructure projects $10.686 billion, Euro bonds of $4.5 billion and federal government budget support of $3.5 billion.
Purpose for borrowing
Explaining how the government intends to source the $29.96 billion loan, the Minister of Finance, Kemi Adeosun said the money would come from World Bank, African Development Bank, Japan International Co-operation Agency among other financial institutions. According to her, getting the loan from these institutions would make it less expensive for the government.
The government intends to use $25.8 billion for projects in health, agriculture, water supply, education, growth and employment generation, while the states would have $4.1billion of the fund for their development activities.
Some of the development projects with which the loans will be funded include the Mambila Hydro Electric Power Project expected to gulp $4.8billion. The Abuja Mass Rail Transit project will use $1.6billion, while $3.5 billion is earmarked for the completion of the Railway Modernisation Coastal Project from Calabar to Port Harcourt-Onne Deep Sea Port segment.
Similarly, about $2.4 billion will be for the Lagos-Kano Railway Modernisation project and the Lagos-Ibadan; Kano-Kaduna segments which have sizable portions slated for their execution.
The government has noted that huge external borrowing is favourable considering the current economic recession. It is expected that huge spending on infrastructure would stimulate growth and take the economy out of recession.
Adeosun said the plan to borrow externally was in line with government’s strategy to focus on concessional debts, low cost loans particularly from multi-lateral agencies, noting that the loans would be applied to develop strategic sectors which government believed would help revive the economy.
She said the power sector would receive a significant amount of the loan to take care of projects militating against efficient power generation.
“The largest beneficiary of our borrowing is agriculture because it is equally strategic and we have programmes by the minister some of which he inherited and is going to restructure and reform and some are new to the ministry. There are too many of us to keep on relying on oil. We can all see what happened at the output data of the oil and gas sector. What’s happening in the Niger Delta has dragged down the GDP of the entire economy. We’re too dependent on oil. We have to invest in capital projects,” Adeosun said.
Supporting borrowing by the government, an economist and Managing Director of Financial Derivatives Company Limited, Mr. Bismarck Rewane had said for the federal government to overcome the economic recession, it must borrow and sell assets to raise funds that would be injected into the economy.
According to him, since there is a fall in oil revenue, the government has to increase the deficit plan.
“The government must inject into the system and the executive is fully engaged because they kwon they cannot hide they have to deal with the problem. And given the fall in oil revenue, you have to increase the deficit plan for the recovery. You must borrow and President Muhammadu Buhari has said we will borrow at least $5 billion externally. We must sell some assets because when you are in this kind of situation, you have to sell some assets,” Rewane said.
National Assembly kicks
While President Buhari was optimistic that getting the funds would go a long in helping to executive various development projects, the National Assembly rejected the proposal on technical grounds. According to the lawmakers, the borrowing plan was not part of the 2016 to 2018 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) which had not been considered nor passed.
The lawmakers noted that they could not then approve the loan, which was part of the MTEF, which was yet to be considered. They added that the request was not submitted with the attached breakdown of the proposed expenditure for which the loan was sought.
Although why it is not be difficult for the government to raise the funds, there are apprehensions that like the past experiences, the borrowing could be used to finance the ostentatious living of some corrupt government officials.
For instance, an economic analyst at Ernst & Young, Mr. Bisi Sanda said the government needed to carry out reforms of its financial management system before embarking on such a borrowing.
“Borrowing, in principle, is not wrong. But if you are using it to finance the corruption or ostentatious lifestyle of public officials, then there is a problem. It has been said some time ago that Nigerians only get 45 per cent value from all government expenditure. This is unlike in the USA where the people get 100 per cent value.
“Our public financial management must be transformed first. Seventy per cent of the budget in Nigeria goes on recurrent expenditure. What about the budget padding allegation and the huge bill of the legislature? We need to address the public financial management system, otherwise, we will find ourselves in the debt trap and leave huge debts for coming generations,” he was quoted as saying.
Project specific borrowing
Financial experts said what government needs to do is to tie the borrowing to specific projects so that they can repay themselves.
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said there was nothing wrong with borrowing, but the government must specify the projects the money so raised would be used for.
“We need to tie this borrowing to specific infrastructural projects we know of in the country. We should say this rail line or highway will be financed with such an amount from the borrowing. This money must be tied to specific projects,” he said.
Also, Rewane said: “I agree with borrowing, but it must be tied to specific projects. The amount is a huge amount. That is about 140 per cent of our current external reserves. It is almost double the amount of the current external debt of the country. We need to know specific projects that the money will be used for. Until we know that, I can’t say it is a right step in the right direction.”
Debt Sustainability
There have been criticisms by some stakeholders on the level of the country’s debts in recent times, some other stakeholders said once the loans are for capital expenditure and productive purposes, they would be sustainable.
Besides, the Director General of Debt Management Office (DMO), Dr. Abraham Nwankwo had emphasised that at below 20 per cent debt-to-gross domestic ratio, Nigeria is very much still in the comfort zone to borrow more. Similarly, an economist, Mr. Odlim Enwegbara, said Nigerian can still borrow for productive purposes. Comparing the debt-to-GDP ratio of some countries, Enwegbara said Japan’s stands at 224 per cent; Italy’s at 128.50 per cent; the United States at 107 per cent; France’s at 95 per cent; the United Kingdom’s at 89.80 per cent; South Africa 44 per cent; India’s 66 per cent; Brazil’s 60.8 per cent; Kenya’s 50 per cent; Ghana’s 67.50 per cent.
“With Nigeria at 17 per cent, the country has the opportunity to raise funds that are projects specific to fast-track the infrastructural development of the nation,” Enwegbara.
Calls for support
As Nigerians await the expected approval of the proposed borrowing, Nwakwo has urged Nigerians to support the federal government’s efforts aimed at getting the country out of recession.
According to him, the task of getting the country out of the present economic challenges remains the responsibility of all, noting that the measures taken so far by the federal government to ensure that the country’s economy becomes sustainable, would be fruitful.
He said that there was no reason to despair, explaining that the authorities were exploring other regenerative areas that abound in the country as part of measures aimed at strengthening the economy.
“Indeed, I am emphasising that what we are supposed to be focusing on is being able to establish the minimum amount of resources we need to get out of the woods. Let us put our thinking together and identify the needed resources from the most appealing and attractive sources,” Nwankwo said.
He added: “Our focus is on raising revenue in a way that we will use our resources to solve our problems. The focus for all us is to do whatever we can do to set ourselves on the path of sustainable growth. That path entails that we will diversify our economy in such a way that we have several sources of foreign exchange. That should be one of the indicators.”
Nwankwo stressed that if Nigerians replace as many as the things they import, they should be able to establish a sense of sustainability in terms of economic recovery.
Nwankwo noted that while the challenges are enormous, the means to get to sustainable growth are abundantly available.
“For a country that has been used to high growth in the past 10 years and an economy that has a relatively steady source of revenue which has largely influenced our consumption and investment on social programmes to collapse drastically due to the fall in the price of oil, it puts a greater burden on competent management of resources,” the DMO boss said.
