8 November 2012

Nigeria: Needless U.S.$9.4 Billion Loan


On Monday, the federal government proposed a portfolio of concessionary loans totalling $9.4 billion under its 2012-2014 Medium Term External Borrowing Plan and requested the National Assembly to consider and approve it.

The proposal consists of an initial request of $7.9 billion which has been pending before the parliament and an additional $1.4 billion comprising a $300 million loan for water supply schemes in selected states, a $1 billion Euro bond and $100 million Diaspora bond which will be issued next year. Coordinating minister for the economy and minister of finance Dr. Ngozi Okonjo-Iweala explained to the House of Representatives that the loan would do more good than harm to the nation's economy.

We disagree with the minister as we did when subsidy was surreptitiously withdrawn at the dawn of this year. Already, there is a raging controversy over Nigeria's domestic borrowing said to be $40bn, a proposed N591.76bn for debt servicing in next year's budget and a projected fiscal deficit of -2.17 per cent of the Gross Domestic Product budget deficit. As at September 30, 2012, Nigeria's external debt stock stood at $6.2 billion, while her domestic debt was put at N6.3 trillion.

What has changed between 2006 when Okonjo-Iweala as minister under former President Olusegun Obasanjo helped to get debt forgiveness of over $18bn and when she came back and our external debt position was still very healthy while domestic debt remained high?

The way the federal government shot up its borrowing pattern by about N1.23tn within one month after it presented the 2013 budget and when its Medium Term Fiscal Expenditure Framework has not been passed is questionable. It only exposes the sloppiness of our economic management team and the shoddy, kneel-jerk response of the government in all spheres.

There is no justification for borrowing the huge sum when not much had come out of what was borrowed in the past. The present borrowing plan would be a "death trap" for the future generation of Nigerians. With a 40-year maturity, 10-year moratorium and at 0.7 per cent interest rate, which indeed would increase over the years at compound interest rate, the debt will obviously make the future of the unborn Nigerians bleaker.

The fact is brought home more tellingly by our economic managers' poor savings culture and management of our finances. We question the need to import capital when some of the projects earmarked for this borrowing are being done with the national budget.

Indeed, a closer scrutiny of the proposed borrowing documents reveals that only 15 per cent of the loan being requested would be necessary. Information available shows that 64 per cent of the loans taken between 1970 and 2005 failed because of corruption and poor monitoring. So far only 2 per cent of the loans were successful, while 9 per cent were possibly fraudulent.

We therefore consider this loan needless at a point we claim to be stocking excess crude account with multinational agencies under the Sovereign Wealth Fund.

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