Sunday, 01 December 2019 06:32

[OPINION] $30bn loan: Borrowing their tomorrow - Adekunle Adeleye

 

Until the National Assembly decides one way or the other what to do with President Muhammadu Buhari’s external loan request of about $30bn, there will continue to be episodic controversy over the propriety of borrowing such humongous amount in one fell swoop. Critics suggest that the 9th National Assembly seems pliant, at least less questioning than the Bukola Saraki/Yakubu Dogara-led 8th NASS.

They, therefore, fear that this parliament may be well disposed to the president’s long-standing loan request, but be intent on leaving the unpleasant questions surrounding the loan unanswered. Indeed, the 9th NASS has done little to dispel the notion that it seems more eagerly subservient to the executive arm, thus unwisely substituting oversight with cooperation. In any case, how the parliament handles this loan request will tell just how independent the legislature is, or even how mature and responsive it is to its constitutional responsibility.

It is not clear why President Buhari sees no viable alternative to the loan request, a request that was first put before NASS in 2016 as a 2016-2018 external borrowing plan. It was barely dignified with a consideration. Brusquely flung out, the borrowing plan came to grief as sensationally as it was initiated. The 8th NASS thought the executive should consider other means of funding infrastructure, and merely singled out two or three items out of the borrowing plan for approval. Much has obviously changed in the economy and in the country’s finances between November 2016 when the request was declined and now. It is significant that the borrowing plan has, however, been represented almost without alteration.

 

If approved, the loan would see Nigeria’s external debt ballooning from about $27bn to $57bn. As it is, the federal government’s component of the external loan stock is $22.8bn, while the states and FCT owe some $4.2bn. Added to a domestic debt stock of $57.7bn (FGN–$43.7bn; and states/FCT — $12.9bn), the approval, if given, would see total public debt shooting astronomically from about $83.8bn to $113.8bn. Ex-president Olusegun Obasanjo plotted Nigeria’s exit out of a debt trap in his first term, arguing that servicing the debt was suffocating the country. There were contending arguments in his day over whether exiting the Paris Club of Creditors was as beneficial as converting the money to building or renewing infrastructure, especially infrastructure that could generate catalysing economic activities. In the end, sentiments laced the argument, and in 2005 Nigeria received debt forgiveness for about $18bn after paying some $12bn.

It is unlikely that the Buhari presidency has considered the disturbing parallel between his loan request and the Obasanjo presidency’s costly and , in some views, questionable, exit from the debt burden his government contended with. By asking for such a huge loan, and potentially nudging the country’s debt burden to a dizzying height, President Buhari seems to be saying that Chief Obasanjo should not have asked for debt relief or exited the Paris Club of Creditors.

 

There is little to show that Chief Obasanjo made the better decision, but there is everything to show that he has a more realistic perception of the workings of the Nigerian economy than President Buhari. The present government has approached the economy with less savvy, first tilting the economy into recession, and then frittering away a lot of resources clawing the country out of the doldrums. It is feared that the fundamentals behind this new loan request is as simplistic as it is befuddling.

Economists have argued that what matters is whether the loan can be put to good use, or as the government itself puts it, whether “The ratio of Total Public Debt-to-GDP  is still below Nigeria’s self-imposed Debt Limit of Total Public Debt to GDP ratio, and far below the World Bank’s debt sustainability threshold of 56% for Nigeria and other peer countries, based on its Country Policy and Institutional Assessment (CPIA) index ranking.” Indeed, some have suggested that the president’s anti-graft reputation might clinch the argument for a new loan.

But has the anti-graft war really amounted to anything beyond loot recovery? Many financial managers insist that nothing fundamental and scientific has been done both to prevent looting of public funds and ensuring efficiency in the management of the country’s resources. In addition they argue that very little is being done to modernise the economy and align its macroeconomic trajectory to benefit from an increasingly complex and interconnected global economy. The partial border closure is an example of a sudden and archaic policy measure deployed to fight complex and sophisticated supranational crimes.

 

By far more important is the sensible argument that, unable to come to terms with the complexities of the modern economy, President Buhari has avoided contemplating all the other options helpful in rebuilding infrastructure than simply indulging in bloated federal spending. This government is borrowing today to massage its glory and receive accolades while pushing the burden and responsibility to future generations. Indeed, according to the Debt Management office, total public debt as at Dec 2015 was $65.4 billion or N12.6 trillion. As at June 2019, public debt has risen to $83.8 billion or N25.7 trillion.

Debt has doubled in naira terms. It would be reckless to borrow more and risk an impossible debt service regimen. As many developed economies are showing, it is not enough to think for today, it is also important to think for tomorrow, to think for future generations by anticipating the issues they will grapple with and proactively precluding the complications that might encumber them, make life and living unbearable, and make them less competitive. By asking for $30bn, President Buhari has not pondered nor answered what the consequences would be for future generations.

President Buhari’s request was first presented in 2016 and rejected by the 8th NASS. There is no foundation for bringing it up again. Not only is it not hinted in the Medium Term Expenditure Framework (MTEF), the government has provided no clue how it hopes to harmonise the new loan, if approved, with the 2020 budget, since the loan is even higher than the entire budget. Already the budget contains a deficit of about N2.8trn that will not be serviced from the proposed borrowing plan presented before the 9th NASS.

The budget also contains a debt service outlay of over N2.45trn in excess of the proposed capital spending of about N2.14trn. And with external loans expected to be serviced through first-line charge, there is no argument about which obligation comes first. Capital spending will, therefore, depend on available funds, as actual fund releases have sadly proved over the years, and only after recurrent expenditure of about N4.8trn has been settled. The economics of the new loan, not to say the fatal willingness to embrace higher debt service burden, is puzzling.

It is time the federal government restructured the country, as offensive as the word might be to them, lighten the burden on the head of the federal government, devolve power and responsibility to states, and recognise that rather than throwing money at the country’s infrastructural deficit, it is more important to scientifically design structures and policies that would free the country’s developmental potential.

The 9th NASS may be complicit in many things, and be even pliant and ingratiating, it however owes Nigerians this once to at least look closely at the president’s loan request and convince itself that giving the approval would not place an intolerable burden on coming generations in the name of bridging infrastructural deficit. The 9th NASS has so far not given the country confidence to hope that it can work and think at the same time; it must find the boldness to dispel the misgivings many Nigerians have about their competence, independence and rationality. They should have the courage to tell the president to look for better and more lasting solutions to the country’s problem than going a-borrowing.

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