MUST NIGERIA BORROW?
PHOTO: FINANCE MINISTER, DR OLUSEGUN AGANGA.
Smooth talkers have been deployed in the public space. At a time Nigerians still relish the fact that their debts are forgiven, some word jugglers say the nation is under-borrowed. If that is not putting logic on its head, nothing else is, at least to the ordinary folk. And the ordinary has a sense of what it means to be indebted. He knows the creditor can come at anytime, he knows how he can hardly sleep when the lender is bent on calling in his credit. He knows he is at the mercy of the one he owes, that the creditor dictates, that he breaths down a debtor’s neck. Well, all of that for the ordinary folk, and it is one reason the media frenzy over a 500 million credit facility that the Nigerian government wants to take is an onslaught on Nigerians. If this has been carefully organized and orchestrated from anywhere, it is a siege. Now every nation borrows, meaning every nation is a debtor. The most indebted are the richest. At 13, 450,000,000,000 as at December 2009, the United States of America (USA) is the largest external debtor in the world. The UK comes next, and then Germany, all of them prosperous nations by any standard. Now that says something, and it raises questions too: why do nations borrow? Why do they owe? The three primary ways nations borrow is to (a) issue bonds, which is one way to borrow money from its own citizens, (b) borrow from international banking organizations like the World Bank, the International Monetary Fund, or the Asian Development Bank, and (c) borrow from another nation.
When a country borrows from an international banking institution, it has to specify the purpose for which the funds will be used (a thing Nigerians hardly hear about) and the inspectors from the lending institutions then visit the country to appraise the project or otherwise audit the process. It’s important they do; these banks are businesses just like any other, and what they do, lend, is regulated by international law, and of course there is the likelihood of running into diplomatic problems. But once they are reasonably assured that they are making a choice both profitable and internationally legal, they can then set the loan amount, terms, and rate of interest, just like when one gets a home loan at the bank, a harrowing experience Nigerians who were recently forgiven their debts know so well.
Earlier this year, Nigeria obtained a $915 million concessionary loan from the World Bank. The government said that loan is to be drawn over the next five years. It has a 10-year grace period, 40-year repayment period and that it carries a 0.75 percent interest rat. The government said the nation’s external debt stood at $3.98 billion by the end of December, 2009; and it was mindful to add that the loan was to help fund infrastructure development. That, from its Finance Minister.
"The federal government has obtained a concessionary loan facility of $915 million from the World Bank for capacity building in the country," Olusegun Aganga had said, barely a month after he became the finance minister. Now it is November and the government is back at it again. It wants to go for a 500 million dollar credit facility. The thing is: the World Bank is not quiet about it, warning the government of dire consequences it tagged to some ‘ifs.’ It’s important to see why.
Dr Ngozi Okonjo-Iweala World Bank Managing Director and Nigeria’s former Finance Minister spoke to journalists the other day. And her comment came against the backdrop of rising domestic debt stock, which hit N3.8 trillion in June while Nigeria’s external debt is $4.3 billion. She did say that the domestic debt stockã€€is about 14 per cent of the Gross Domestic Product (GDP), and is thus less than the 30 per cent threshold for any real trouble for the economy. But she noted that if the debt pile rises, Nigeria will be back to the pre debt-forgiveness days. Even then she didn’t mean external debt. “Any time we talk about debt in Nigeria people start shouting about external debt. They think because it is domestic, it cannot come and harm the economy…If you accumulate lots of domestic debt, you start clouding out the private sector. "I think the level we are now, if we can sort of level off there, that is okay. Nigeria should not accumulate any more domestic debt because it is going to lead to some of the ills we came out from. It is not only external debt that leads to choking and clouding out of the private sector. There is no problem with external debt for Nigeria. The external debt of Nigeria is low enough but Nigeria has to pay attention to domestic debt and stop accumulating that." Now it is important to pay attention to Okonjo Iweala and read the lips of the word jugglers well. That is because they, the so-called experts, and some in the corridors of power are trying to make debt accumulation attractive again. Yes. Okonjo-Iweala said the nation’s external debt profile is low, a thing the experts use to justify their claim that Nigeria is under-borrowed, a thing they want to use to legitimize Federal government’s attempt to accumulate more external debts. But such calls draw attention away from the danger of piling up domestic debt (which continues to pile up), though the idea of ‘under-borrow’ itself remains a befuddling one for a nation that had just been forgiven what it owed. The government says if it ever borrows from outside, it will be according to strict guidelines, and that such fund will be expended on what it is intended for. Nigerians love to hear what their leaders have to say, though they know their leaders do whatever pleases them not minding public opinion. While there is talk of expending new credit facilities on strictly what it is intended for, what has not been told the public are the specifics to which the government ties the latest 500 million dollar credit facility. The government should be clear on this as it goes cap-in-hand for facilities. And that way, citizens will at least have a Fund-Expenditure log to which they can hold their leaders answerable - when elections come.
Ajibade, a Consultant Writer, lives in Abuja and can be reached at [email protected]