BEFORE NIGERIA LEAPS INTO $30B LOAN

Nigeria is set to borrow $30B. At the moment the detail of the loan is still sketchy such that the Senate couldn’t consider the request for its approval. I agree with Government that we have a huge infrastructure deficit, and sustainable growth and development are difficult without infrastructure. However, I think we need to get our figures right, otherwise we will be walking into murky waters. A Government official was quoted to have said the loans were cheap. I don’t think that is a good reason to borrow.
It is important to note that we also have a bad history of managing foreign loans. In the late1970s, our external debt was about $1b. By 2005, we had grown our debt burden to about $30b. Former president Obasanjo eventually secured a debt forgiveness of $18b after parting with about $12b. The former president’s reason was to free resources for the development of the country. Barely five years after he left office, the same people that worked hard to secure the debt forgiveness started encouraging another government to borrow. How far have those borrowings taken us? Have we suddenly become better at managing foreign loans?
It is not enough to say that we want to borrow to finance infrastructure. It is not enough to say we want to fund power infrastructure. Are we funding generation, transmission or distribution? What is the cost of each project? We need a list of the entire projects and their costs. The first sign of seriousness in the decision of government to borrow should be conveyed with a detailed list of all the projects that the funds will be committed to. I think it is almost impossible to start talking about a $30B loan, an amount much bigger than our current foreign reserves, without a clearly defined list of the projects that will gulp the funds. Some people have attempted to excuse the executive by citing urgency. Some claimed that interest rate will be higher by December/January. No matter how reasonable that sounds, it is inexcusable that you want the Senate’s approval to borrow an amount far bigger than your reserves without details. Our Senate would have been rightly described as an extension of the executive or at best incompetent should such fly. In the statement released by government, $3.5b, much more than 10% of the total proposed borrowing, will be used to support budgets. Will this figure be committed to recurrent or capital expenditure? Are we trying to use the backdoor to continue to borrow to pay our legislators, renovate Aso Rock yearly, fund foreign trips, maintain at least seven private jets etc? I am of the opinion that we must clean up the mess in our system and block leakages before proceeding with these loans.
Not too long in this country, a construction company was awarded a contract at the cost of N64b to build an airport runway, only for a legislator to expose the whole process as a fraud. Legislators eventually forced it down to about N14b, but the contract was finally cancelled due to the unpleasant circumstance that surrounded it. Had the legislators not carried out due diligence, we would have been defrauded. We need a comprehensive list of all the projects and their estimated costs for due diligence to be carried out. That the loans are cheap is no excuse to pay more for a project than its actual cost.
After coming up with a detailed list, the government must explain to us in figures how they intend to pay back. We need to know the terms of the loans. We are borrowing in dollars, so we must pay back in dollars. The prospect of another oil boom is very bleak. Demand for crude oil is falling daily. Countries are more committed now than ever to clean fuel. Sweden is working hard on banning petrol cars in the next few years. I am sure more countries will follow. Japan now has more charging stations than filling stations. Which products are we projecting to earn us more foreign exchange in the future? I am sure some people will claim that once we fix infrastructure, we will be able to produce some goods that we are currently importing especially food and then we can save some foreign exchange which will go into repayment of the loans. Brilliant idea but you need to match the periods. Suppose you take a loan now for infrastructure and you have to start paying back next year, bearing in mind that saving of foreign exchange will not start immediately, how do you match the periods. It takes time to build infrastructure? Mismatching loan terms and project profile can create financial crisis. Some of these projects may not even be completed in PMB’s 1st term. We need that information to be confident that we would not run into a quagmire.
At the moment we are groaning under debt. We need a measure of confidence that these projects can repay the loans. Out of our current budget of about N6t, about 1.36t (22%) is committed to repayment of debts. In these days of dwindling revenues, can we really afford to spend more to service debt in years to come? Our current debt burden is about $61b (external debt is about $11B) and that requires 20% of our budget. If we increase our debt burden by another $30b, how do we pay back? Can we sacrifice more than 30% of budget for debt repayment? Our current budget has a deficit of about 36%. What level of deficit are we targeting after increasing our external debt almost thrice (300%) and total debt by 50%?
I also need to shed light on what some experts and politicians use to wrongly justify borrowing. They will tell us that America is a great borrower. Yes, but America borrows dollars. America can print dollar bills to payback all her creditors in a worst case scenario. America is the source of all the dollars in the world. Some also mention China but they fail to tell us that China is a creditor nation with a positive net international investment position (NIIP) of about $1.6t. This implies that China’s external investment far exceed her external liabilities. It takes a lot of insincerity to use China to rationalize huge foreign loans. It is the largest single creditor of America. Japan also borrows but it is the largest creditor nation in the world with NIIP of about $2.8t as at June 2015.
Greece is a developed country with good infrastructure but ran into debt crisis because of poor debt management. It became the first developed country to default in its debt repayment obligation to IMF. With poor management, a country can have infrastructure and still face debt crisis. Brazil is generally taken to be a third world country (although far ahead of us industrially). They borrowed heavily, enjoyed high growth rates for some years but they are in a big financial mess today. Rating agencies have already downgraded Brazil debt to junk status. Just a few years ago investors couldn’t have enough of Brazil. However, falling prices of the country’s main exports, alongside huge debts and structural imbalance which they refused to fix, exposed them. When Brazil was borrowing, they thought they were doing the right thing.
The urge to take Nigeria out of recession is not sufficient to borrow an amount that is larger than our reserves. We need to get our figures and acts right.

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