14 November 2012

Nigeria: Stop This Binge Borrowing


Indications that President Jonathan is seeking National Assembly approval to obtain an external loan of $7.9 billion to finance projects in the country are worrying.

Last month, the Debt Management Office (DMO) put the country's debt profile at about $45 billion, out of which external debt was $6 billion while the domestic component of the debt was put at $39.6 billion.

There are two main concerns over the country's ballooning debt profile: the first is the rate at which the debt level is rising in recent months, under the current administration. For instance, the president earlier this year sought the approval of the National Assembly to borrow $5.7bn (about N1.3 trillion) from five international financial institutions to fund a pipeline project contained in the Medium Term (2012-2014) External Borrowing Plan. Similarly, DMO figures show that between the end of the first quarter of this year ended on March 31, 2012, and the second quarter that ended on June 30, 2012, total domestic debts spiked from N5.966tn ($37.71bn) to N6.153tn ($38.89bn).

The second main concern is the cost of government borrowing, which currently is above 12 per cent on a three-year, five-year and ten-year bonds. In 2012 budget, a whopping sum of N559.6 billion was budgeted for debt servicing and this figure is likely to rise exponentially as more debts are accumulated.

Although borrowing to finance development projects is, on its own, not altogether a bad thing; and the country's projected debt of between now and 2015 will still be lower than the ceiling of 40 per cent of GDP recommended by international financial institutions, Nigeria is unlike other countries where the public can be assured that such loans will be managed prudently. In fact, if past experience is any guide, chances are that a lion share of the loans being sought will end up in private pockets or grossly misappropriated or, as often is the case, both. It is also difficult to understand the new round of borrowing even as the government fails to cut down on unjustifiably high cost of running itself. Many Nigerians are not convinced that the extra earning from oil is well spent.

There is also a serious concern that the high level of government's domestic borrowing will end up crowding out the private sector because investments in treasury bills and government bonds are now more attractive than putting money in fixed deposits or lending to enterprises and the real sector of the economy, which create jobs and grow the economy. Only seven years after the country, with considerable flourish, exited the Paris Club of creditors in November 2005 via a debt-relief deal that saw the country parting with $12bn in exchange for the cancellation of $18bn of its debt to Paris Club, the government is pushing the country to another debt overhang and its consequences. It will be a gross and unpardonable mistake for this administration to continue on this path of binge borrowing just because there are irresponsible lenders willing to lend without asking too many questions. This was largely how the country and several other African countries got into the debt trap of the 1980s and 1990s.

It is important that the government dispenses with the illusion that it can borrow itself to development-assuming that the projects which are used to solicit for these loans are actually embarked upon-without seriously addressing some of the structural deficits that predispose the country to borrowing, such as endemic corruption, weak macro-economic management capacity, political instability, inadequate infrastructure and the lingering crisis in the country's nation-building. Again while no one will doubt the importance of saving for the proverbial rainy day, one wonders why a portion of the purported savings in such mechanisms as the Sovereign Wealth Fund, the Foreign Reserves and the Excess Crude Account are not used to partly finance some of these projects in conjunction with the private sector under a Private-Public sector Initiative. The government cannot justify the move to coax the country into another debt trap. The country has been on that path of infamy before. And to think that those who advised the government get out of the debt trap are those advocating binge borrowing that will inexorably lead to the same tragic result!

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