Debt Trap All Over Again?
On Tuesday last week, President Muhammadu Buhari wrote a letter to the National Assembly requesting for approval to borrow $29.96 billion from foreign lenders over the next three years. The request, which he said is part of the government’s External Borrowing Plan, is meant to address infrastructure deficit in the country and is to be spent on power, rail, roads, education, health and water projects.
According to the president’s letter, the money is made up of projects and programmes’ loan of $11.274 billion; Special National Infrastructure projects of $10.686 billion; Euro Bonds of $4.5 billion and Federal Government Budget Support of $3.5 billion. He said, “Considering the huge infrastructure deficit currently being experienced in the country and the enormous financial resources required to fill the gap in the face of dwindling resources and the inability of our annual budgetary provisions to bridge the infrastructure deficit, it has become necessary to resort to prudent external borrowing to bridge the financing gap.”
This indication that Nigeria will once again go a-borrowing from Shylock foreign lenders caused jitters and consternation all over the country. No Nigerian will forget in a hurry that at the beginning of this Fourth Republic, foreign loans [and the huge chunk of national revenue used to service them annually] had become such a burden that former President Obasanjo spent a great deal of time travelling abroad and also mobilising other Third World leaders to campaign for debt relief. We never got the hoped for relief from creditors but the Obasanjo administration used revenues from oil windfall to exit from London and Paris Cub debts in 2005. We paid a lump sum $18 billion to exit from $32 billion in debt. It was said at the time that what this country borrowed since the 1970s was about $18 billion and having repaid over $30 billion, we still owed $32 billion!
It was a very painful national experience and we should not be in a hurry to return to that situation. There is some understanding for the current government’s position because many economists say we must borrow in order to finance our way out of the current, debilitating economic recession. The Revenue Mobilisation, Allocation and Fiscal Commission, for example, welcomed the borrowing plan. Its acting Chairman Shettima Umar Abba Gana said government did the right thing because Nigeria has one of the lowest debt to GDP ratios on the African continent, about 14 percent. What he did not add was that twelve years ago we were committing up to 45 percent of government’s annual revenue to debt service and we only achieved the current low debt to GDP ratio by very painfully giving away $18 billion to creditors in one fell swoop.
Where will these mega loans come from and what will they be used for? Minister of Finance Mrs Kemi Adeosun said last Thursday that it will be borrowed within the next three years from the World Bank, African Development Bank, Japan International Co-operation Agency, Islamic Development Bank [IDB] and China EximBank. Details provided in a statement by her Special Adviser Festus Akanbi said Federal Government will take $25.8 billion while states will borrow $4.1 billion. He said $18.3 billion dollars will be spent on infrastructure, with $14.6 billion going to federal projects while $3.7 billion will go to state projects.
According to the statement, projects billed to benefit from the loans include Mambilla Hydro Electric Power Project, $4.8 billion; Abuja Mass Rail Transit project phase two,