Dmo Explains Why Government Needs Proposed $30bn Proposed Loan
SAN FRANCISCO, November 01, (THEWILL) – The Director General of the Debt Management Office (DMO) Dr. Abraham Nwankwo has provided clarifications on the proposed $30bn foreign loans request submitted to the National Assembly by President Muhammadu Buhari last week for the execution of projects from 2016 to 2018.
THEWILL recalls that the Senate rejected the plan when it was put to a vote on the floor of the chamber during the plenary on Tuesday .
However, the DG, while speaking on a Channels TV live programme explained that the loans, which cover a period of three years, would help in addressing the biting infrastructure deficit in the country.
“When you are in this kind of economic situation, you have to decide where you want to start addressing the problem. You then come to the conclusion that the most critical point to start is to deal with infrastructure problem,” he said.
“If you deal with infrastructure problem, the cost of power will be lower, the cost of transportation will be lower, and the cost of most other services will be lower.
“One of the features of the proposed loan is the low concessionary nature of the interest rate, which starts 1.5%. This arrangement differs from previous loan arrangements (under previous administrations) with the Paris Club of creditors, which came with floating interest rates as high as 18 per cent.
“The facility will help revive infrastructure like railways which will smoothen movement of heavy goods across the country.
“Tackling infrastructure deficit would force down costs of goods and services on the long run, explaining that the development will have a significant impact on the price level in the economy.
“That impacts the economy by bringing down the general price level, (they call it the consumer price index, which is a classical measure of the price level and the rate of inflation.) When you do this, the Central Bank of Nigeria will set the monetary policy rate low, because all over the world, the central bank knows it has to put the monetary policy rate high enough to catch up with inflation rate, otherwise we will be talking of negative real rate of interest which destroys the economy.
“So the way to go about it is that you have adequate infrastructure, power road, transportation ICT. All these make the cost of production in the economy much lower and when this happens, the cost of goods and services will be lower and then inflation will start coming down.
“And if inflation comes down, the monetary policy rate will be lower and this will translate to a lower lending rate. That is the sequence.
“The $30bn is actually for a three year-period and that it will run from 2016-2018 to be repaid in 20-30 years' time. With this arrangement, it will not be difficult for the country to repay.
“The DMO had advised the Federal Government that Nigeria can as from 2017 acquire loans to the tune of $22bn and that $30bn (for three years) is lower than what it advised the Federal Government to get.
“The sum of $10bn will be spent per annum for three years and will be targeted at building infrastructure in all states of the federation and the main focus will be on power generation, rail and road renovation and construction.
Story by Oputah David