FOREIGN LOANS: CAUTION, PLEASE
Despite recent advice from public finance experts that the country's economy might be at great risk if the government fails to check its rising debt profile, the Federal Government is pushing, yet again, for an external loan of $4.43billion (about N6.64 trillion).
President Goodluck Jonathan has requested the National Assembly to approve the mandate for the said external loan. The amount represents the balance of $5 billion for which he sought the approval of the two chambers of the legislature earlier this year.
However, the $4.4 billion loan request ran into stormy waters in the House of Representatives, last week, when majority of the members vehemently opposed the motion. At the end of debate which lasted several hours, the Speaker, Hon. Dimeji Bankole, hurriedly stood down the motion to, in his words, 'allow wider consultations.'
The motion was heading for outright defeat had it been put to vote. It is the duty of the House Committee on Loans, Aids and Debt Management to study and recommend the terms, conditions and the amount being sought by the President. The Senate is yet to open debate on the contentious loan proposal.
All the same, we share the reservations of the House on the bid for fresh loans. We are surprised that, in spite of repeated warnings, the Federal Government is still pushing for external loan at this time that the economy is in bad shape. In recent weeks, unsolicited advice against increasing the nation's domestic and external debt burden has been coming from different quarters. Three former top government officials have cautioned the government on the matter.
They are the immediate past Governor of the Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo, current President of the World Bank Group, Mrs. Ngozi Okonjo-Iweala and Vice President of the World Bank (Africa Region), Dr. Oby Ezekwesili. They all cautioned against accumulated internal and external borrowing, which they said was capable of choking the economy and stifling the private sector. They warned that Nigeria could not afford to slip back into the morass of debt few years after exiting the Paris Club of creditors. From the look of things, it appears that the warnings fell on deaf ears.
We wonder why government is not heeding this advice even when available figures show that the economic outlook is not cheering. According to figures released recently by the Debt Management Office (DMO), the custodian of the nation's debt profile, Nigeria's current domestic debt stands at N3 trillion, with external loans of over N1 trillion. External reserves have also dropped by 1.3 percent in July, to stand at $36.6 billion in September.
This is against $43 billion recorded in January earlier in the year. It is $9 billion less than what was recorded in May, 2007. The N3 trillion domestic debt represents about 16 percent of our Gross Domestic Product (GDP), which measures the aggregate of goods and services produced in the country. This is not good news for the economy. It is also not helped by government's recent decision to allow external borrowing up to 25 per cent of GDP. The rising debt profile may, ultimately lead to unintended structural adjustment programmes. This is more so because our economy is not resilient and vibrant enough to absorb sudden turbulence resulting from debt overhang.
Ordinarily, nothing is wrong with external borrowing by government. However, judicious and prudent management of loans has never been a virtue of our governments, past and present, as most of the loans taken in the past were mismanaged, misapplied or outrightly misappropriated. This makes it hard to trust government on the effective and efficient management of any loans obtained.
This proposed loan facility might not be different.
We, therefore, urge the government to jettison the idea. We commend the House of Representatives for opposing the motion and urge them to remain resolute in their stance against it. Indeed, our nation would have no need to seek loans all the time if the managers of loans already taken had invested them in productive sectors of the economy.
The fact that our debt profile is rising, speaks volumes on the recklessness of government. The loan request, if granted, may end up being used to finance the nation's skyrocketing budget deficits, or as a warchest for next year's elections. This will be bad for the country.
Altogether, Nigeria cannot afford to get into another debt trap. Government should think out of the box for necessary funds to meet pressing needs. To President Jonathan, we say: heed the wise counsel and withdraw the request for the external loan.