Nigeria’s huge developmental needs make it imperative to borrow to finance infrastructure and other developmental projects, with an aim to improving the lives of citizens analysts say, although skepticism abounds among the populace about the ability to deploy such funds effectively.
Nigerian President Goodluck Jonathan only yesterday sought the approval of the Senate to borrow $7.905 billion from the World Bank, Africa Development Bank (ADB), Islamic Development Bank (IDB), and Exim Bank of China, informing that the money would be used to finance a number of projects designed to create employment opportunities, with a view to growing the economy.
Nigeria currently sports a relatively underleveraged balance sheet and its current debt profile remains relatively low, with a debt-to Gross Domestic Product (GDP) ratio of 17% compared to 44% for peers in the developing word.
This, combined with the growing poverty rate put at 60.9 per cent, as recently revealed by the National Bureau of Statistics (NBS), means the Government would want to use some of that spare borrowing capacity in its fight against poverty and underdevelopment.
Samir Gadio Emerging Market Strategist at Standard Bank London, states in a note to Businessday that:
“Nigeria’s external debt remains marginal, at USD5.7bn or 2.6%/GDP in late 2011, which is also one of the lowest ratios of external indebtedness in Africa. This means the new loans would not endanger external debt sustainability, assuming they are approved, especially because of the concessional form of the financing.”
He adds that the USD7.9bn amount, represents more than the outstanding foreign debt stock, so the planned borrowing will probably be controversial in some circles and will only be justified if there are tangible projects in the pipeline whose implementation can be properly monitored and tracked.
According to Kayode Tinuoye Head, Investment Research at Afrinvest West Africa, long term borrowing when done right by the Government has huge benefits for the populace, although he acknowledges the hurdles the Government has to cross with regards to its credibility with the public. In a note to Business Day he states:
“When long term debts are efficiently matched with long term projects in critical areas of the economy, the multiplier effects should temper the burden of debt repayment over time. Also it is important to note that Nigerians’ concerns about government borrowing have stemmed from the historic non-accountability of public spending”
That historic non accountability culminated with the pay –off of most of Nigeria’s external debt stock owed to the Paris and London Clubs in 2005, which has led Nigeria’s External debt ratios to become very favourable at less than 3 per cent of GDP.
The Co-ordinating Minister for the Economy and Minister of Finance, Ngozi Okonjo Iweala, had recently also called for less focus on domestic borrowing which tends to crowd out borrowing by the private sector.
Kayode Tinuoye concurs with the above line of thought noting:
“External debt financing, relative to domestic debt, is more desirable at this time due to the continued crowding out effect of the domestic bond market on private sector credit growth”
In addition to the country’s underleveraged balance sheet, the proposed rebasing of the GDP also gives more elbow room for increasing the nation’s debt stock. If the proposed borrowing plan of the government sails through, it will take Nigeria’s debt to 20% of GDP, which could even fall lower than current levels after an expanded GDP base.
The interest expense expected to be borne by the Government for servicing loans from development banks such as the ADB and IDB will be low, as such loans are usually given out at concessionary rates of 2 percent or less.
Meanwhile, Organised Labour and civil society group have expressed resentment over the move by the Federal Government to borrow $7.9 billion (about N1.3 trillion) for pipeline projects and job creation, saying more foreign loans would pile up Nigeria’s debt profile and place the economy at the mercy foreign creditors.
The Nigeria Labour Congress (NLC), Trade Union Congress (TUC) of Nigeria and Joint Action Foreign (JAF), reacting differently on Wednesday, opposed the proposed loans and called on the leadership of the National Assembly to be wary about granting approval to President Goodluck Jonathan’s request.
President Jonathan had on Tuesday forwarded a letter to the National Assembly, seeking approval to borrow $7.9 billion foreign loan. President Jonathan said the loan represented cumulative facilities offered by the World Bank, African Development Bank, Islamic Development Bank, Exim Bank of China and Indian lines of credit, to finance pipeline projects and create jobs in the country.
But reacting, Owei Lakemfa, its general secretary, described any foreign loans as unnecessary. “We do not need any foreign loans to be able to execute important projects,” Lakemfa told NAN.
Lakemfa said that the Senate Committee on Appropriation had discovered that the 2012 budget was inflated by over N1 trillion-- which showed a high level of corruption. He said that except corruption was curbed, it would be difficult for the country to move forward.
He flayed a situation in which some top government officials in the petroleum industry could not give coherent figures when appearing before the House of Representatives panel looking into the issue of petroleum subsidy, insisting that government must ensure that those looting the public treasury were brought to justice.
Biodun Aremu, chairman of the Joint Action Forum (JAF), also speaking, advised the Federal Government to look inward, and stop further placing of the nation’s economy at the mercy of foreign loans.
Such borrowings simply place the economy at the mercy of foreign creditors and pile up our debt profile. I do not think we need foreign loans to create jobs,” Aremu said.
John Kolawole, secretary-general of the Trade Union Congress (TUC) reacting also, said that Nigeria does not need to borrow to be able to create jobs or execute major projects.
“We must think and scrutinise well before taking such a loan. Do we need to take a loan to execute the project the President talked about? We must be careful about how we borrow,’’ he said.
Kolawole said that there must be transparency before such a loan could be taken, to avoid problems in the economy.
On employment, Kolawole said that the planned job creation was a welcome idea, but that the government must ensure that it was gainful employment and not an opportunity to “create jobs for the boys.”
He said that it should adhere to the rule of job decency and impact positively on the lives of the people and the nation.