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Thursday, October 21, 2021

Bent Over by a Burden of Debts

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Zainab-Ahmed
Minister of Finance, Mrs. Zainab Ahmed

Nseobong Okon-Ekong and Udora Orizu write that harder times await the average Nigerian with the recent accelerated approval by the Senate of N850 billion loan request by President Muhammadu Buhari and other loans from the World Bank, the IMF, AfDB and the Islamic Development Bank

Very few subjects of public discourse split Nigerians into opposing camps, holding strongly and jealously to their opinion, as the issue of national loans, which first became open to communal participation in 1985 when the country’s military President, Ibrahim Babangida got everyone talking about a $2.4 billion loan from the International Monetary Fund (IMF).

From that time of the Babangida IMF loan saga that sparked riots and nationwide debates, Nigerians have not stopped talking about general credit, ostensibly obtained by their leaders to better their lot, for which they are demanded to make a lot of sacrifices. Though the people overwhelmingly rejected the loan, Babangida tiptoed behind them to accept, not only the loan, but the conditionalities that came with it including devaluation of the Naira. Many tie the prostrate fall of the Nigerian economy and the weakening of the national currency to this period.

The precepts for taking more loans have not changed since then. Each administration pays lip service to efforts to diversify the economy and save the country from perpetual dependence on the vagaries in the price of oil, Nigeria’s major export. Inability to produce enough food to feed her ever-increasing population has continued to constitute a major hurdle standing in the way of Nigeria’s advancement. Until recently, the burden of subsidizing petroleum products for consumers was an open drain pipe through which the country’s foreign reserve was frittered away. Though its wholesome effects are yet to be felt by the general populace, the insistence of the Muhammadu Buhari administration to close the country’s land borders may have stemmed the tide of smuggling which dealt a major blow on the economy.

However, the appetite of Nigerian leaders for foreign loans have since witnessed a huge increase. While it generated stout opposition over three decades, the civilian governments that succeeded the military have allegedly learnt to offer enough inducements to federal legislators, who approve of the loans without as much as a whimper.

Recently, Nigeria returned cap in hand to the IMF for another loan. Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed alluded to “the global humanitarian and economic crisis caused by the COVID-19 pandemic is having a severe impact on Nigeria,” as major reason for the government of Nigeria request of the maximum amount of IMF emergency financing available to Nigeria under the Rapid Financing Instrument (RFI) about US$3,398 million, corresponding to 100 per cent of the country’s quota. Ahmed’s letter was addressed to Ms. Kristalina Georgieva, Managing Director, IMF.

Over the years, given the country’s rising debt profile, Nigerians always express concerns whenever they hear that the government is seeking one loan or another.

The question on the mind of the average Nigerian is what successive governments do with the previous borrowings? Does government have any developmental landmarks to show for these huge debts accumulated over the decades?

As at March 2020, the Senate put the Nigeria’s total debt profile at N33 trillion after its approval of $22.7 billion foreign loan for the Federal Government penultimate week.

This is just as the Director-General of the Debt Management Office (DMO), Mrs. Patience Oniha, expressed concern that economic effects of the Coronavirus pandemic may incapacitate the country from effectively servicing the debt.

Figures emerging from the DMO indicate that as of December 2019, the Federal Government’s domestic debt stood at N14.2 trillion, while external debt was $27,676.14 (N10 trillion). DMO said in addition that between January and December 2019, the Federal Government paid N480.4 billion on servicing external debts.

With the increasing burden of debts, there is no gainsaying that harder times await the average Nigerian who will be made to pay more for goods and services as VAT is further reviewed upwards and tariff on electricity consumption goes up. Job losses are also on the cards for many hapless employees, whose employers are forced to adjust to the realities of the times.

The country’s oil-dependent economy has taken a hard-hit from the impact of the Coronavirus outbreak and the drop in global crude prices caused by the pandemic.

Thus, the government needing more money to finance its budget gap has reversed the its plan to borrow from the external market this year, making it to seek funding from the domestic markets with the approval of the Senate.

The Senate at the resumption of plenary on April 28-2020 gave an accelerated approval to President Muhammadu Buhari’s N850 billion loan request.

The loan, according to the President will be sourced from domestic capital market and is needed to finance projects and programmes in the 2020 budget.

The President’s letter was read by the Senate President, Ahmad Lawan, at the plenary.

The letter read in part, “Request for the National Assembly to raise N850 billion in new external borrowing in the 2020 Appropriation Act in Naira from the domestic capital market. The Senate may wish to recall that the 2020 Appropriation Act provided for N1,594,986,700,544 of new domestic borrowing and N850 billion of new external borrowing. These borrowings were to part finance the 2020 budget deficit of N2,175,197,885,232 only.”

“Furthermore, the Senate may wish to note that external borrowing from the international capital market increases Nigeria’s external reserves, provides access to lower costs as well as avoids crowding out private sector borrowers who also wish to access the domestic capital market.”

“However, recent developments in the global economic environment as a result of the Coronavirus pandemic and the decline in international oil prices have made it less attractive to borrow from the international capital markets at this time. To ensure that there are adequate funds to finance critical projects and programmes in the 2020 budget, I hereby seek the Senate’s approval to raise the N850 billion of new external borrowing in Naira from the domestic capital market instead of from the international capital market.

“However, it remains our intention to access the international capital market when conditions improve to refinance this N850 billion of new borrowing and epitomize the benefits inherent in external borrowing. Presently, the conditions in the domestic capital market are favourable in terms of availability of funds and relatively low interest rates. This cause of action is deemed prudent given our current realities.”

The President noted that he has directed the Minister of Finance, Budget and National Planning to make herself available to provide any additional information or clarification which the lawmakers may require.

As concerns were raised by the citizenry on the need for the loan, some federal lawmakers voiced their views to THISDAY, clarifying the loan approval by the Senate.

The Chairman of the Senate Committee on Media and Public Affairs, Senator Ajibola Basiru, told THISDAY that no fresh N850 billion loan was approved by the Senate last Tuesday for the executive.

According to him, the resolution passed by the Senate was an amendment to the earlier resolution as to the source of the initial N850 billion loan that had been approved to be part of what should be used to fund the 2020 Appropriation Act.

He said, “You will recall that the Senate had actually approved the loan of N850 billion but to be sourced from external sources. However, because of the COVID-19 pandemic and of the challenge in the international oil market with the attendant challenges of raising the approved loan externally, the President requested that the approved loan should rather be raised through the domestic capital market. It was the above request on the sourcing of the earlier approved external borrowing of N850 billion from domestic capital market that was approved by the Senate.”

In the Green Chamber, the Chairman, House Committee on Defence, Hon. Babajimi Benson, (APC, Lagos), said the loan is desirous and necessary to sustain the implementation of the 2020 budget and will enable government to adequately finance projects contained in the budget.

He further said the loan will help to sustain the current efforts in fighting the coronavirus pandemics and ensure the crisis does not degenerate and cause more devastating problems for the government and its people.

On the concern that the N850bn borrowing programme will drive up interest rates, he said it is pertinent to note that, while this was likely, it will not be much.

He noted, “The maximum increase may be about 3% and this is because there are maturities from Open Market Operations (OMO) that are far more than the N850bn and these maturities will be seeking for outlets to invest. The FG borrowing programme will meet such demand. The funds will be used to finance critical projects and programmes in the 2020 budget. These projects, if they are largely capital projects, will help to boost the economy and put it back on the recovery track after the COVID-19 pandemic. As you are aware, financing is key to any project and programme implementation and this is what the government aims to achieve with the loan. Funds targeted at critical projects including in the health sector will strengthen the health sector to address the outbreak and prepare it for future health challenges.”

“Though borrowing from the international market is usually seen as attractive, the COVID-19 pandemic and falling oil prices has reversed this attraction. Therefore, the N850bn loan will be sourced domestically from the local capital market. This is a win-win situation for both the government and the financial institutions. While the government will benefit from the prevailing favourable conditions in the domestic capital market in terms of availability of funds and relatively low interest rates, the domestic financial institutions will be further strengthened as they will be able to shore up their capital strength. It is a case of making the money remain within the domestic economy.”

“It is important to note that the N850bn loan is not a new borrowing. It is only a conversion of external to domestic borrowing. It is an amendment of the source of borrowing from external to domestic. Also, it does not alter the total domestic borrowing under the 2020 Appropriation Act which is about N1.595 trillion.”

“There is also no fear for the private sector being unable to access bank facilities. In the first place, commercial financial institutions in Nigeria have over N7trillion in savings with the CBN. Moreover, in addition to banks, most institutions that will invest in the borrowing programme will be Pension Funds, Local Institutional Investors, Asset Management Companies, etc. Most importantly, borrowing from domestic financial institutions will allow private investors to leverage on the opportunities provided by other FG interventions like the BOI, N50b CBN facility and others.”

“Having outlined the benefits of the loan facility, it is important to mention that the National Assembly, and particularly the House of Representatives will strengthen its oversight of the entire process and eventual disbursement and implementation of projects under it. Furthermore, the House will transparently work with relevant CSOs and other stakeholders to ensure that details of the loan facility are in the public domain.”

Another lawmaker, Hon. Henry Nwawuba (PDP, Imo) said there is actually nothing wrong with borrowing but not arbitrarily.

He noted that the 2020 budget was passed with an agreed component for borrowing to fund it even before the global economies plummeted.

He however called for equity, fairness, transparency and even distribution of capital projects, this he said is to ensure the executive will leave no political zone shortchanged as was seen in the recent attempt to borrow $23 billion dollars, and also the lopsided implementation of the Federal Governments Social Intervention Programme.

“The House of Representatives is yet to consider the request from the executive but we know from the crash of the price of crude that the 2020 budget is endangered. The price has crashed even below the downward review of the oil benchmark to $30 per barrel by the National Assembly. We are left with basically two options as a country. To run through 2020 without any capital implementation or fund through borrowings.”

“We also need to urgently begin to consider and implement strategies for a sustainable post-COVID 19 economy. Scientists believe that this pandemic will likely stick around until a proven vaccine is gotten. We cannot therefore continue with a business as usual mentality. We must prepare for a marathon and not a 100 meters sprint. What I will like to see is a line-by-line scrutiny of the details attached to this borrowing. Without seeing and knowing what the details are any opinion is like winking in the dark; pointless,” Nwawuba said

On his part, Hon. Benjamin Okezie Kalu (APC, Abia) said the N850 billion loan is not a fresh loan and was already envisaged and provided for in the 2020 Appropriation Act.

He explained that the only new thing regarding the borrowing is that the President considers it more prudent to borrow that amount from the domestic capital market as against borrowing same from the international capital market.

According to Kalu, “Would I call that a fresh loan? I am really not settled with that. What is new is that Mr. President considers it more prudent to borrow that amount from the domestic capital market as against borrowing same from the international capital market, as of this time and considering the impact and effect of covid-19 on the international capital market.”

“The Senate may wish to recall that the 2020 Appropriation Act provided for N1,594,986,700,544 of new domestic borrowing and N850 billion of new external borrowing. These borrowings were to part finance the 2020 budget deficit of N2,175,197,885,232 only.”

“Take a look at the 2020 budget deficit and the proposal to finance the deficit with new domestic borrowing and new external borrowing. Mr. President’s request is simply saying that it will be more expensive to borrow from the international market at this time. He intends to borrow from the domestic market and possibly from the international market to refinance the loan, when the situation improves.”

But this is not the only cause of concern to Nigerians. Last Tuesday, the Executive Board of the IMF approved Nigeria’s request for emergency financial assistance of US$ 3.4 billion (N1.224 trillion) under the Rapid Financing Instrument (RFI) to cover financial emergencies created by the COVID-19 pandemic. In order to get this particular loan, the Nigerian government made a prior promise to implement certain policies as a guarantee that it the loan will be paid in full in 2025, less than five years away.

According to Ahmed, other loans to which Nigeria is committed are $2.5 billion from World Bank and $1 billion from AfDB. However, she kept mum on monies obtained from Islamic Development Bank and other multilateral financial agencies.

To convince the IMF, Ahmed announced a 10-point parameter through which the government hopes to pursue and realize policies consistent with macroeconomic stability and good governance. These include a fiscal policy that will ensure increase of revenue to 15 percent of the GDP through further VAT reforms, rise in excises, and removal of tax exemptions— once the crisis passes. Implementation of an automatic fuel price formula will ensure fuel subsidies, which have been eliminated, do not reemerge.

Another critical area is the power sector reforms, where government is seeking technical assistance and financial support from the World Bank—including through capping electricity tariff shortfalls this year to N380 billion and moving to full cost-reflective tariffs in 2021.

Voicing its concern for the immediate and long-term effect of these loans on Nigerians, the major opposition political party, the Peoples Democratic Party (PDP), said through its National Publicity Secretary, Kola Ologbodiyan, that Nigerians were alarmed at the Buhari administration over dependence on loans, noting that the practice was wrecking the economy while amassing huge problems for the future generation, apparently resonating the Bible that, “The rich rules over the poor, and the borrower is the slave of the lender.”

According to Ologbodiyan, “It is even more worrisome that the loans are not transparently managed as most of them are being trailed by allegations of mismanagement and embezzlement. The PDP holds that instead of constantly resorting to borrowing, the Federal Government should articulate innovative ways to create wealth and plug wastes. What is expected at a time like this is for the Buhari Presidency to immediately cut on luxury, slash the number of Presidential appointees, cut down huge allowances that gulp billions of naira and maintain a lean budget that will center on health, research and growth of our economy among other critical needs.”

The PDP, therefore, charged the Senate presiding officers to note that in approving this loan, the nation holds them responsible to ensure strict oversight monitoring of the handling of the money. “The Senate must ensure judicious use of the funds as well as prompt repayment. This is because our nation cannot afford any default, as such is capable of crippling the capital market and worsening the economic hardship already being faced by Nigerians.”

QUICK FACTS:

* As at March 2020, the Senate put the Nigeria’s total debt profile at N33 trillion after its approval of $22.7 billion foreign loan for the Federal Government penultimate week

*Director-General of the Debt Management Office (DMO), Mrs. Patience Oniha, expressed concern that economic effects of the Coronavirus pandemic may incapacitate the country from effectively servicing the debt

Figures emerging from the DMO indicate that as of December 2019, the Federal Government’s domestic debt stood at N14.2 trillion, while external debt was $27,676.14 (N10 trillion). DMO said in addition that between January and December 2019, the Federal Government paid N480.4 billion on servicing external debts

*On April 28-2020, at the resumption of plenary, the Senate gave an accelerated approval to President Muhammadu Buhari’s N850 billion loan request

*The N850bn loan is not a new borrowing. It is only a conversion of external to domestic borrowing. It is an amendment of the source of borrowing from external to domestic. Also, it does not alter the total domestic borrowing under the 2020 Appropriation Act which is about N1.595 trillion

*The COVID-19 pandemic and falling oil prices has reversed the attraction of borrowing from the international market. Sourcing the N850bn loan domestically presents a win-win situation for both the government and the financial institutions. The government will benefit from the prevailing favourable conditions in the domestic capital market in terms of availability of funds and relatively low interest rates, while the domestic financial institutions will be further strengthened as they will be able to shore up their capital strength. It is a case of making the money remain within the domestic economy

*Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed alluded to “the global humanitarian and economic crisis caused by the COVID-19 pandemic is having a severe impact on Nigeria, as major reason for the government of Nigeria request of the maximum amount of IMF emergency financing available to Nigeria under the Rapid Financing Instrument (RFI) about US$3,398 million, corresponding to 100 per cent of the country’s quota

*In order to get this particular loan, the Nigerian government made a prior promise to implement certain policies as a guarantee that it the loan will be paid in full in 2025, less than five years away

*To convince the IMF, Ahmed announced a 10-point parameter through which the government hopes to pursue and realize policies consistent with macroeconomic stability and good governance
*Other loans to which Nigeria is committed are $2.5 billion from World Bank and $1 billion from AfDB. However, she kept mum on monies obtained from Islamic Development Bank and other multilateral financial agencies

*Maximum increase in interest rate of about 3% may occur as a result of the N850bn borrowing, this is because there are maturities from Open Market Operations (OMO) that are far more than the N850bn and these maturities will be seeking for outlets to invest. The FG borrowing programme will meet such demand

*Commercial financial institutions in Nigeria have over N7trillion in savings with the CBN

QUOTE:

As at March 2020, the Senate put the Nigeria’s total debt profile at N33 trillion after its approval of $22.7 billion foreign loan for the Federal Government penultimate week.

Figures emerging from the DMO indicate that as of December 2019, the Federal Government’s domestic debt stood at N14.2 trillion, while external debt was $27,676.14 (N10 trillion). DMO said in addition that between January and December 2019, the Federal Government paid N480.4 billion on servicing external debts

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