Buhari, NASS, stop the loan binge

The Punch - - EDITORIAL -

Heed­less of dire warn­ings and stark re­al­ity of an un­sus­tain­able over­hang, Pres­i­dent Muham­madu Buhari is bent on dig­ging the coun­try into a new debt trap. Should the Na­tional As­sem­bly ac­cede to his re­newed re­quest to take $29.96 bil­lion loans, to­tal na­tional debt stock will rise to $113.84 bil­lion, far higher than the last debt bur­den of $35.5 bil­lion that the coun­try ex­ited via a fa­mous debt buy-back deal in 2005/06. The Pres­i­dent should pull back from this dis­as­trous plunge and the Se­nate should ac­cord na­tional in­ter­est paramountc­y by de­ci­sively re­ject­ing the re­quest.

Nige­ria has an un­savoury track record with debt, but no gov­ern­ment has been more ad­dicted to borrowing than Buhari’s that, iron­i­cally, came into of­fice promis­ing fis­cal dis­ci­pline and change. So en­am­oured of debt it is that in­her­it­ing only $10.31 bil­lion ex­ter­nal debt in June 2015, it had piled it up to $27.16 bil­lion by the first quar­ter of 2019, an in­crease of $16.85 bil­lion. do­mes­tic debts also rose from $52.94 bil­lion to $56.72 bil­lion within the same pe­riod. The Debt Man­age­ment Of­fice said the gov­ern­ment’s ex­ter­nal borrowing grew by 32.38 per cent and do­mes­tic debts rose by 52.19 per cent by June. As the re­quest was be­ing pre­sented, the In­ter­na­tional Mon­e­tary Fund was is­su­ing yet an­other shrill warn­ing that the coun­try’s debts were be­com­ing un­sus­tain­able.

But un­de­terred by ris­ing debt ser­vic­ing, al­ready set at N2.45 tril­lion in 2020 – over 20 per cent of the bud­get – Buhari is in­sist­ing on borrowing al­most $30 bil­lion, a move that the or­gan­ised pri­vate sec­tor said would send pro­vi­sions for debt ser­vic­ing to over N3 tril­lion or over 30 per cent of the na­tional bud­get.

For the gov­ern­ment, how­ever, the loans are re­quired for projects that are “crit­i­cal to the de­liv­ery of the gov­ern­ment’s poli­cies and pro­grammes re­lat­ing to power, mining, roads, agri­cul­ture, health, wa­ter and ed­u­ca­tional sec­tors” and fall un­der its 2016 to 2018 ex­ter­nal Borrowing Plan. These, said the Pres­i­dent, in­clude spe­cial in­fra­struc­ture projects, bud­get sup­port ($3.5 bil­lion) and Euro Bonds of $4.5 bil­lion. Of­fi­cials con­tinue to jus­tify the borrowing binge on the rev­enue cri­sis that fol­lowed the oil price crash and which even­tu­ally tipped the coun­try into re­ces­sion in 2015/2016, the poor state of in­fra­struc­ture and mas­sive unem­ploy­ment, among oth­ers.

Coun­tries do bor­row to sup­ple­ment other rev­enue sources, pro­vide in­fra­struc­ture, so­cial ser­vices and bud­get sup­port, but it is done wisely. The world has wit­nessed enough debt crises from which shrewd lead­ers have learnt to avoid pe­on­age. But Nige­ria’s debt is prob­lem­atic: as the OPS noted, there is very lit­tle to show by way of in­fra­struc­ture, jobs and poverty re­duc­tion for the debt al­ready taken. The gov­ern­ment short-sight­edly bor­rows for con­sump­tion, to sus­tain the cor­rupt, bloated bu­reau­cracy and sus­tain of­fi­cials in opu­lence. It com­pounds this by seek­ing to sin­gle-hand­edly fund cap­i­tal-in­ten­sive in­fra­struc­ture like ports, air­ports, rail­ways, roads and oil and gas projects. But Mckin­sey, a con­sul­tancy, says de­vel­op­ing coun­tries need $2 tril­lion in­vest­ments just to meet cur­rent growth pro­jec­tions. The World Bank said the coun­try needs to spend $15 bil­lion each year for a decade to bridge crit­i­cal in­fra­struc­ture gap.

Rather than heed ex­pert ad­vice and ad­mo­ni­tion to lib­er­alise the op­er­at­ing en­vi­ron­ment and pri­va­tise state com­mer­cial as­sets, the gov­ern­ment per­pet­u­ally bor­rows for rail­ways, air­ports and ports. It stub­bornly re­tains co­matose re­finer­ies and the gi­gan­tic but idle Ajaokuta steel com­plex, fails to ef­fec­tively block fis­cal leak­ages, runs an over­sized bu­reau­cracy and has not re­formed its tax sys­tem that sees less than 20 per cent of the tax­able adults and busi­nesses pay­ing up. At 6.1 per cent, tax-togross do­mes­tic Prod­uct ra­tio is far less than the 17.5 per cent av­er­age in Africa. Widen­ing the net and com­pelling tax pay­ment, es­pe­cially among the high in­come earn­ers, hold prospects of huge rev­enue in­flow.

loans should be taken only for vi­able in­fra­struc­ture projects that can re­pay, stim­u­late pro­duc­tion and cre­ate jobs. The gov­ern­ment jus­ti­fies loans on the grounds that debt-to-gdp ra­tio is low; but this has risen to 16.1 per cent and the IMF has re­peat­edly warned that the dan­ger lies in the rev­enue-to-debt ra­tio. The Fi­nance Min­is­ter, Zainab Ahmed, trum­pets that the coun­try has a rev­enue prob­lem, not a debt prob­lem but there has been lit­tle progress in di­ver­si­fy­ing rev­enue sources. With­out for­eign di­rect in­vest­ment, which fell to $2.2 bil­lion in 2018, gov­ern­ment can­not sig­nif­i­cantly raise in­fra­struc­ture, cre­ate mil­lions of jobs and re­duce im­ports.

Nige­ria is dig­ging deeper into an un­sus­tain­able debt hole. Of­fi­cials de­lude them­selves when they cite the world’s most suc­cess­ful economies’ debts to jus­tify borrowing: Ja­pan’s $4.35 tril­lion ex­ter­nal debt and 237.54 per cent debt-to-gdp, United States’ $20.26 tril­lion debt and 106 per cent debt-to-gdp ra­tio, and China’s $5.2 tril­lion na­tional debt and 55.36 per cent debt-to-gdp ra­tio, do not de­rive from di­rect loans, but from the is­suance of trea­sury in­stru­ments that re­flect their strong economies and cur­ren­cies.

The Se­nate should re­ject the loan re­quest out­right. Buhari should go back to the draw­ing board and opt for lim­ited loans tar­geted at only those in­fra­struc­ture projects with im­me­di­ate prospects of gen­er­at­ing rev­enues, sup­port­ing pro­duc­tion and cre­at­ing thou­sands of jobs. Quick wins are avail­able in im­me­di­ately pri­vatis­ing the loss-mak­ing re­finer­ies and sup­port­ing ex­pe­ri­enced for­eign in­vestors to re­vive them, as well as all other oil and gas down­stream as­sets. like Saudi Ara­bia and euro­pean coun­tries, the air­ports and ports need to be sim­i­larly given as con­ces­sions to best global brands while ex­ten­sive re­forms should be un­der­taken swiftly to draw in FDI. The $62 bil­lion the Supreme Court said oil com­pa­nies owed from pro­duc­tion shar­ing con­tract obli­ga­tions and an­other $20 bil­lion in un­paid roy­al­ties should be re­cov­ered.

With­out power, the econ­omy can­not fly; gov­ern­ment should ur­gently re­view the power pri­vati­sa­tion and take de­ci­sive mea­sures to let go of its stake in the dis­tri­bu­tion and gen­er­at­ing com­pa­nies and lure new for­eign in­vestors.

Nige­ria suf­fered for three decades un­der a debt over­hang, Buhari and the Se­nate should not plunge her into a worse one.

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