Buhari’s burden of US$15.1 billion foreign and N14.1 trillion domestic debts

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Kris Obiaje

  • Debt profile has grown 50% in just two years.
  • IMF, others express fears and concerns.
  • Debts level suggests that individual Nigerians owe approximately N289 a day.

Never has a country been so rich, yet financially incapacitated such that will require a great deal of borrowing to bankroll critical aspects of projects with far reaching impacts on her economy. The situation with Nigeria is seemingly beyond known economics.

The idea of borrowing in order to keep the economy and governance afloat is an osculating epicycle that have continued to retroflex the feigning mantra of taking our economy out of the woods. It is against this backdrop that concerned citizens are putting to the goldsmith brimstone, the planned US$5.5 billion loan the Buhari-led federal executive is angling to secure in order to fund critical aspects of the 2018 budget.

Federal and States Government… obsessive-compulsive borrowers

According to the National Bureau of Statistics, NBS, the country’s total domestic and foreign debts as at June 30, 2017 was stacked high at about US$15.1 billion and N14.1 trillion respectively – the body had declared back September.

Notably, the debt profile which stood at US$10.718 billion in 2015 rose to US$11.406 billion in 2016 and US$15.047 billion in 2017 these show a 50% growth in just two years.

The lion’s share of the total figure of US$15.047 billion goes to the Federal Government, which accounts for US$11.106 billion, or about 74 per cent. The 36 states of the federation and the Federal Capital Territory, FCT, Abuja owe about US$3.94 billion, or 26 per cent.

The Federal and State governments’ shares of the debt stock had grown from US$7.349 billion and US$3.369 billion in 2015, to US$7.84 billion and US$3.568 billion in 2016, and US$3.94 billion and US$11.106 billion in 2017 respectively.

The NBS who gave further disaggregation of the country’s foreign debt to include US$9.67 billion as multilateral debt; US$218.25 million as bilateral (AFD) and US$5.15 billion from the Exim Bank of China credit to the Federal Government.

Records of the debt figures showed that the domestic debts liabilities of the 36 states of the federation and the FCT have continued to grow since 2015 since Buhari took reigns of command.

From about N2.503 trillion in 2015, the NBS data showed the figure rose to N2.959 trillion in 2016 before reaching the latest point of N3.001 trillion in 2017.

According to statistics, out of the total N14.017 trillion national debt stock, the Federal Government accounts for about N11.058 trillion, or 78.66%, against about N2.959 trillion, or 21.34% by all the states and the FCT.

The Nation’s ballooning debt profile caught the attention of International financial agencies, as the country’s budget deficit continued to grow.

The International Monetary fund, IMF, in Washington D.C in the US, expressed concern over Nigeria’s and other oil producing countries’ rising domestic and foreign debt.

Assistant Director, Fiscal Affairs Department, IMF, Mrs. Catherine Pattillo, expressed the worry at the World Bank/IMF Annual meeting in the middle of October.

According to Pattillo, the concern about a number of oil exporters is that unless there is action now, debt which has been rising in many of these countries, could lead to serious economic dislocations especially in respect to their rising interest payment obligations, she said.

If you have a continuing rise in debt, interest payments will also rise, and then, it will consume a large part of any revenue that you collect and you won’t be able to use that revenue for the objectives of, say, an economic growth and recovery program, she explained..

According to reports of estimates, every Nigerian citizen from a day old owes an approximate debt of N105, 556 or N289 a day. This is nothing but a country stockpiling liabilities for generation yet unborn.

The authority has had its game plan all ordered and ready to be accentuated, one at a time, so to say. So, in October of 2016, it unveiled the 2016-2018 External Borrowing (Rolling) Plan, asking the National Assembly for approval to borrow $29.960 billion to execute key infrastructural projects across the country over the two years.

This bowl of liabilities included the infrastructure loan to fix railways and roads. Part of it was the US$575 million World Bank loan for reconstruction of the North-East. It also includes request for fund to combat the outbreak of polio in the North-East region.  While US$125 million was for the polio emergency and US$450 million was geared towards assisting Nigeria in the reconstruction and rehabilitation efforts in the North-East ravaged by incessant insurgents. Another US$10.686 billion was allocated for special national infrastructure projects.

The appeal equally included US$4.5 billion euro bonds and what was tagged federal government budget support of $3.5 billion. Some other projects and programs were to be executed with a loan of $11.274 billion. There was also a request for the virement of N180.8 billion from the 2016 budget for the provision of needed votes for some critical sectors across the 36 states of the federation and the FCT.

In the bowl was the amnesty program’ request for N35 billion and internal operations of the armed forces which were to cost N5.205 billion. This was apart from votes to Operation Lafiya Dole, NYSC, and N14.667 billion to foreign missions, capital expenditure for the Nigerian Air Force, and statutory transfers to the Public Complaints Commission, among others.

The senate on receiving the request did not the flame to smolder before throwing out the bowl with its contents altogether. Perhaps the executive failed to put in proper perspective what those request were and why the country stewing in the centre of economic recession storm had to go embroiled itself in such a gargantuan burden of indebtedness.

Then in April 2017, the executive made another request for what was labeled the US$6.4 billion China, World Bank loans. It was to cover the China-Exim supported projects; Lagos-Kano modernization projects, the Lagos-Ibadan segment at US$1.231 billion; the Lagos-Kano railway modernization project, the Kano-Kaduna segment at US$1.146 billion, the coastal railway project, and the Lagos-Calabar segment at £3.474 billion, making a total of US$5.851 billion, with US$575 million being for the rehabilitation of the North-East and polio eradication.

The Senate may have lost track and didn’t recall this was part of the request that had been earlier presented and rejected by it. Or perhaps, this time round the executive went back to the drawing board and did its homework, including back channel communication with members of parliament.

Hence, months after, an approval was given for US$1.806 billion to take care of the Lagos-Ibadan segment double track railway modernization project, to be funded by the China Export-Import Bank and the North-East rehabilitation project for US$575 million.

2017 budget: implementation garbed in borrowed robes

Concerned citizens, economic experts, and stakeholders haven’t relented in expressing their dilemma over the Federal Government’s intention to go ahead with the US$5.5 billion so to fund some capital projects captured in the 2017 budget. Opinion is directed at the fact that the nation should as a matter of expediency, look inward in order to explore other avenues to fund its expenditures.

President Muhammadu Buhari presented a four-page letter to the Senate early October, which showed the proposed borrowing for the implementation of the external borrowing approved in the 2017 Appropriation act. As have been related; it isn’t the first time the government is borrowing to fund components of the 2017 budget.

The government had in June, 2017, raised a US$300 million through a Diaspora Bond issue. On the domestic front, the executive also raised N100 billion through the issuance of Sukuk bonds to facilitate the construction and rehabilitation of 25 priority road projects across the six geopolitical zones. Each zone had an equal allocation of N16.67 billion for the projects.

Mrs. Patience Oniha, the Director-General, Debt Management Office, DMO, hinted that the proposed US$5.5 billion would still be within the country’s debt to GDP ratio limit of 19.39%.

The Agency explained that the proposed borrowing of US$5.5 billion from external sources by the Nigerian government is a good initiative.

It said the loan process was in two phases. The first represents US$2.5 billion new external borrowing provided for in the 2017 Appropriation Act. While the second represents US$3 billion External Borrowing that will be used to repay some of the existing domestic debts.”

Some of the capital projects proposed to be financed by the loan are; the construction of a Second Runway at the Nnamdi-Azikwe International Airport; rail projects including Lagos-Kano, Calabar-Lagos, Kano-Kaduna, Ajaokuta-Itakpe-Warri, Kaduna-Idu; and the Bodo-Bonny Road with a Bridge across the Opobo Channel.

The DMO listed four reasons such funds were better raised externally which includes; reduction in the Interest Cost of Borrowing, as according to it, external borrowing in US Dollars is much cheaper at about 7% per annum, compared to up to 17% p.a. in the domestic market.

DMO also claimed that external borrowing increases Stability in the Debt Stock. The Agency also posited that the process increases in borrowing space for the private sector and the pressure in the domestic market created by the large government borrowing will be reduced.

And to underscore the advantage the country stands to take from external borrowing, DMO stated that it will shore up Nigeria’s External Reserves. It said external Borrowing represent foreign currency into the nation’s External Reserve thereby allowing for a stable exchange rate for the naira.

.. And the senate gave the go ahead:

Before the National Assembly gave the Federal Government the go-head to take the US$5.5bn external loan on Tuesday 14th November 2017, the Minister of Finance, Mrs. Kemi Adeosun, had submitted that the terms and conditions of the loan would be favourable and not compromise the integrity, independence and interest of Nigeria and her citizens.

Experts speak:

According to an economist and lecturer at the University of Calabar, Dr. Daniel Essien, “monitoring and proper management of capital is this country’s first challenge. The truth is that there isn’t a thing wrong with government borrowing, either external or domestic. The problem is the faithfulness in the delivery mechanism. “The projects the government has earmarked for the loan will boost economic development and create job opportunities. It isn’t enough for government to continue to mouth job creation and all we see are in the papers with a sea of unemployed graduates languishing everywhere.” he concluded.

But Mr. Calistus Onyema an Abuja-based investment banker and financial analyst posited that the construction of a second runway at Nnamdi Azikiwe International Airport, Abuja, would increase the safety of air travels, doubles the use of the airport by international airlines and boost revenue.

His words, “if properly managed, this fund being sort can go a long way to increase Nigeria’s economy and image internationally. We have been crying for inflow of capital investment into the country, but we tend to forget that first impression matters a great deal. Look at our so-called international airports.

“This is what visitors see and use in assessing us when they first get into the country. Imagine sometime ago at the Murtala Mohammed international airport and right in front of foreigners at the lounge, we saw several rodents dancing in the ceiling. What happened to millions of naira budgeted for fumigation and maintenance of such places?  The authority intentions are right and positive and lasting economic benefits can be derived from the projects. For instance, if the long abandoned Mambilla hydro power project is given the dire attention it needed, this will go a long stretch to alleviate some of the power generating bottleneck the nation has to contend with.

Speaking with Stockswatch, Mrs. Demuren Patricia, of Milestone Securities, Lagos, submits; “The 2nd Niger Bridge will boost commerce across the South-east and South-south. Not only that, it would increase the good image of people across the Niger. Imagine when you go home with visitors, a friend of mine visiting from Ghana the other day wondered why in the 21st century, Nigeria urban cities such as Onitsha and Asaba has a 19th century bridge still linking them. I took it in my stride and we laughed over it. “But deep down within me I knew something was wrong with this country. This is a country that punishes and neglects the golden geese. Do you know the amount of capital generated from these regions to the national coffers? And what industrialization that goes on especially in parts of the south east? Yet there are the most abandoned.”

While some appreciates the Senate for the approval of the loan, the concern of a majority of stakeholders is the need for proper monitoring to ensured proposed implementation and that the country’s borrowing is subsumed within acceptable limits.

In the words of Dr. Ayoola John of Obafemi Awolowo University, “We call on the Debt Management Office to wake up to its responsibilities. The penchant for Nigeria’s agencies to be toothless bulldogs should be reined in, especially now that we have a government that claims to be waging war against graft. We need our institutions to be diligent in its duties. “As we have been reading in the papers, already the current figure coming from the DMO indicates that Nigeria’s total debt stock has hit N20trn, that’s about US$15.4 billion, with the external component being N4trn, or 23% of the total debt. I will say it has become necessary to ensure great care and prudent management of the new loans to be obtained.”However, it is heartwarming to note that the DMO had recently set a ceiling for domestic and foreign loans that the Federal Government can take in any fiscal year. According to DMO, the new debt ceiling is pegged at US$22.08 billion. It is expected that the DMO will stand firm and exact its authority derived from our statutes book whenever its conditions are seen to be violated.

Nonetheless, an economic expert, Henry Boyo has argued that it is either that the government is being mischievous or is outright ignorant from the way it has handled the whole process. If you have a situation where debt service and payment is already critical and has become an acute problem, the common sense response would be that you should first say, let me cut down on my expenses; let me cut down the frivolities in the expense structure that I maintain on my consumption structure at the moment so that my total annual expenditure will reduce. If it reduces, I don’t have to borrow so much even if I have to borrow, because I had consciously reduced the amount that I spent last year that turned out to be too heavy to sustain. So, you first reduce your expenses as the rule. The second thing is to try to increase your sources of income. And how does government increase its source or sources of income? The primary source of government’s income is taxation.”

However, the opposition’s Peoples Democratic Party, PDP in a reaction by its Spokesman, Dayo Adeyeye in Abuja, said that the request by the President was aimed at pushing the nation down into what he called the black hole of debt. He said, Like other well meaning Nigerians, we consider this new bid for a foreign loan of US$5.5 billion being sought by the administration of President Buhari as an attempt to push the nation down into the black hole of debt that will affect negatively, the future of this nation.

Part US$3 billion dual series bond was finally floated

In the passing week the FGN floated another bond. The aggregate principal amount of the dual series bond is being offered notes under the Federal Government’s US$4.5 billion Global Medium Term Note program (increased from US$1.5 billion). The Notes comprise a US$1.5 billion 10-year series and a US$1.5 billion 30-year series. The Ministry of Finance said the 10-year series will bear interest at a rate of 6.5%, while the 30-year series will bear interest at a rate of 7.625%, which will be repayable with a bullet repayment of the principal on maturity. The statement said “the offering, which attracted significant interests from leading global institutional investors, is expected to be closed on or about 28 November, 2017, subject to the satisfaction of various customary closing conditions.”

All that glitters… Rising debts

Regardless of the government position enunciated for taking the facility, experts and observers have raised some questions which the government has to provide valid answers. Some of these insightful posers among others include the fact that the budget was predicated on the benchmark oil price of $45 per barrel, but the price of the commodity has since gone beyond $50 per barrel. The 5.5 billion dollars question is; why can’t government use the surplus derivable to close the gap? Furthermore, there are reports about trillions of idle funds sitting at the CBN vault; why didn’t government access such funds to finance the budget deficit?

Observers have also expressed deep concerns that the country’s continued indebtedness may worsen further when the federal government takes on the additional burden of the proposed US$5.5 billion.

An Economic Analyst, Prof. Uche Uwaleke, who is also an Associate Professor of Banking and Finance at the Nassarawa State University, said, the over N6 trillion in the Treasury Single Account (TSA) with the CBN belongs to federal Ministries, Departments and Agencies (MDAs). The government has actually been taking money from the CBN to finance the 2017 budget against the security of money in the TSA. Foreign reserves represent a country’s stock of foreign currency and are primarily used to defend the local currency. The higher the foreign reserves, the stronger the Central Bank is in a position to maintain stability in the Forex market. So, using foreign reserves to finance the budget will spell doom for the exchange rate. If the FIRS collects up to N7 trillion in tax revenue, it is shared by the three tiers of government with the Federal Government taking about half while the rest is shared by the states and local governments. As long as government continues to take the easy path to always borrow whenever its purse grows lean, critics will equally continue to pick on it.

A financial expert, Dr Azuka Chukwuma, criticized the move to secure the loan, saying government has no reasonable need for such facility as it has enough internal funds to finance the 2017 budget. Chukwuma reasoned that government has told us that it has been making lots of discoveries from politicians who they described as corrupt. We have enough cash already in the country; why not use it instead of borrowing? We have enough money in our foreign reserve and also some idle funds in the CBN, why not use these? According to Chukwuma, the country’s economic team has to be very active, it is supposed to harness and come up with areas of priority for the government and also determine when to borrow. He said that there are millions of Nigerians parading the streets without jobs. On the flipside it is cheerfully encouraging that the federal government has pledged to do whatever is possible to curb her spending on debt servicing to 24% of its revenues. This remains to be seen especially in an environment where overhead cost far outstretched government capital projects’ expenditure.

After studying the Nigerian debt status last year, an Islamic Development Bank’s (IDB) representative, Abdallah Mohammed Kiliaki, said Nigeria stood the risk of running into economic stampede if she continues to service her debts with huge sums. He stated, when talking about unsustainable debt, it means that a country or a borrower is unable to pay. So, we take very serious note of that.  When you look at the debt to GDP ratio of Nigeria, it is very low. It is 17% compared to Italy and other countries which are about 150%, while that of the United States is about 100%.”

A former Managing Director of one of Diamond Bank Plc, Dr. Alex Otti had said, there are times that you need to spend your way, literally speaking, out of a challenge of output; recession being one of those. But I think that even at that, you need a certain level of care to make sure that you don’t get into an unsustainable debt scenario. My big worry is that the impact of the borrowing may not reflect on the output in the sense that if we get into a double whammy where our debt balloons and we don’t have the necessary stimulation of production, especially when our consumption is very external in its orientation, we would need to be very careful. ”

Another report quoted the Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, as saying he condemned the idea of borrowing to support recurrent expenditure. Rewane said ‘we need to move away from debts for recurrent expenditure to debts for capital expenditure, which is projects-specific. The debt level itself is not dangerous, but the debt service level and the debt burden are very high. We are using 66% of our independent revenue to pay interest, so interest rates must come down substantially, or else, we are in trouble.”

Other experts have said that the amount of debt should not be a cause for concern considering the low debt to Gross Domestic Product ratio of the country. They submitted that there was the need to pay attentions to the debt service amount versus the capital expenditure of the budget.

 

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