Using Foreign Debt Resources to Turn Around Ailing Economies

Towards achieving this end, there is an a strong position being canvassed by stakeholders that the DMO should be empowered by law to monitor the use of these loans to ensure that they are deployed “only to capital projects to support diversification and i

Title: From Economic Downturn to Turnaround & Prosperity; Strategy for Economies Hit by Recession but Which Have Idle Capacity

Author: Dr. Abraham Nwankwo Reviewer: Simon Ibe

Anew book by Dr. Abraham Nwankwo, the Director General, Debt Management Office, DMO, has, in great detail, outlined how Nigeria, and other countries that, like her, are experiencing economic adversity, especially those that have idle capacity, can move from economic downturn to turnaround and prosperity.

The compact book, aptly titled “From Economic Downturn to Turnaround & Prosperity; Strategies for Economies hit by Recession but which have Idle Capacity,” is brutally frank about what must be done, in a systematic manner, to move Nigeria, and countries going through similar crisis, from the sorry place where they are to the place of prosperity where they would be if they apply the prescriptions meticulously.

The book has five parts, two figures and one table. Part 1 is ‘’A Bold Response is Required’; Part 2 is ‘’A Precis of Nigeria’s Problem’’ while Part 3 is’ Long-Term Stabilization and Structural Reform For Self-Sustainability. ’Part 4 is ‘The Economic Turnaround Plan’ and Part 5 is ‘Sources and Sequence of the Stimuli for Recovery.’

Not one to pull his punches, Nwankwo opened the book by acknowledging that petroleum oil export-dependent countries like Nigeria, Russia, Saudi Arabia, Angola and Venezuela were actually shocked by the drastic fall in international market price of oil from the second half of 2014, which resulted in economic downturn for them.

The books is, thus, about how Nigeria and countries in similar situations can turnaround their economies and begin to enjoy prosperity in the medium to long term, especially as “oil boom may never occur again, unlike what happened after the bursts of 1982-1986, 1998 and 2008.”

The bold response, he posits, would, in spite of current negative market perception and weak exchange rate, be to borrow substantially, especially from external sources, “to pursue a programme of deep and complex structural changes in the economy,” that would involve “massive investment in physical and social infrastructure development, aimed at diversification, competitiveness, exportmarket resilience and self-sustaining growth.”

Part 2 of the book summarises the problem of the country to include over dependence on crude oil export revenue and the drastic drop in the price of crude. Also, the reduced dependence on crude oil and gas by industrialized nations, especially those that have made gains in alternative energy sources and energysaving and energy efficiency devices; those that have joined the oil-producing league and those that have succeeded in exploration and exploitation of shell gas and shell oil.

These problems have led to drastic drop in revenue, inability of governments to honour recurrent and capital obligations and slow-down in economic activities.

To deal with these problems, the book posits that short-term and long-term fiscal stabilization measures are required, coupled with structural change and diversification for self-sustaining growth.

Though government and the private sector will be the agents for the implementation of both of these short and long programmes, especially as concerns sourcing of needed funds, government would lead the way in the mobilization of the “substantial affordable and long-term debt capital,” ( mostly from external sources) needed “to finance long-term fiscal stabilization and self-sustaining growth of the economy, in a carefully programmed manner.” While arrangements are being made to fund the long-term programme, Nwankwo argues that there is need for the short-term measures “to establish an environment of calmness and composure needed to support the ultimate longer term transformation measures.”

The short term measures include public finance reforms; rationalization of, especially, recurrent expenditure, minimizing of wastes, leakages and inefficiencies and rationalisation of existing subsidy schemes.

Whereas these measures will achieve the short term stabilization objective, the book insists that the way out of the economic quagmire would be to pursue “well – articulated and bold longer-term measures” alongside the short-term stabilization measures. This would involve long-term transformational debt funding and economic turnaround through a reorganization and diversification programme that would take advantage of the breathing space provided by the long-term financing.

For reasons that are carefully outlined, the book stressed that “it is appropriate for Nigeria to borrow to reflate the economy, stimulate growth, generate employment and reduce poverty.” It argues further that it is most preferable that the bulk of the borrowing must be from external (multilateral, bilateral and commercial) sources, stressing, however, that the country should go for lower cost funds with tenors of up to 20 years and longer.

The main sources of the external borrowing, the book points out, should be the World Bank Group, the African Development Bank, the Islamic Development Bank, the Asian Development Bank and bilateral sources such as Agence Francaise de Development (AFD), KFW of Germany, Japan International Cooperation Agency (JICA), China Eximbank etc.

It also recommends that, considering the huge amount of money needed and the variety of projects to be financed, a programme for the issuing of Eurobonds in the International Capital Market (ICM) must be established, falling back on the experiences of the country’s successful issues of 2011 and 2013 and the “irresistible deep and diverse, high-return opportunities for investors” that abound in the country.

The book projects that an additional $15billion per annum can be sustainably borrowed over the next four years to build a strong economy, insisting, however, that the proceeds of the external loans will be used for capital projects (physical and social infrastructure) that would be targeted at turning around the economy and generating self-sustaining growth with maximum employment and guaranteed repayment of the debt.

Towards achieving this end, there is an a strong position being canvassed by stakeholders that the DMO should be empowered by law to monitor the use of these loans to ensure that they are deployed “only to capital projects to support diversification and industrialization,” with special emphasis on physical infrastructures, like electric power, road networks linking rural areas, aviation etc and social –type infrastructure like health and education.

All hands, the book insists, must be on deck, especially at the highest levels of political leadership, to ensure that the loan proceeds are available as programmed, and recommends that “the Ministries of Finance, Industry, Trade and Investment, National Planning and Foreign Affairs will need to work closely” for the desired goal to be achieved.

The book equally stresses the need for a Turnaround Plan (TP) to be put in place as the formal policy document that would clearly define the policy direction, the logicality of the defined route of escape from the crisis; the plausibility of the strategy being adopted and predictability of outcomes.

This Plan, of a bright future, would engender confidence, positive expectations and positive perceptions from both local and foreign stakeholders, especially investors ( multilateral, bilateral, ICM and others), and as the loan proceeds begin to flow in, the foreign exchange reserves would improve and the exchange rate will be strengthened in favour of the local currency, attracting other types of capital.

The inflow of the loans proceeds will result in a boost in construction activities that would increase demand for labour and materials that would positively impact the economy.

As infrastructure improves, production activities will experience a boost,; there will be diversification and competition, leading to a self-sustaining economy. The idle capacities in agriculture, agro-processing, manufacturing, solid minerals exploitation and processing, petrochemicals and ICT will be harnessed and the private sector will take over from the public sector and begin to drive the turnaround process.

The Table that details indications of idle capacity in Nigeria is eye opening and after careful perusal of the Table, it is easy to agree with the author’s position that low cost and long tenured external debt resources should be used to put the idle capacities to work for the desired economic turnaround and sustainable rapid development of the country.

The author, holder of a PhD degree in Economics from the University of Nigeria Nsukka, the same institution from where he also obtained his Bachelors and Masters degrees, has to his credit other celebrated books – Stable Growth & Foreign Exchange; Tatu (Drama), Minds of Time (Poetry) and Oracles for Heroes (Prose).

He is passionate about the need to diversify the nation’s economy, and trumpets it in his writings and wherever he speaks. A first class patriot, it is hoped that he, and the other equally passionate managers of the nation’s economy will continue to receive support at the highest political levels to put into practice the prescriptions he has so meticulously and forcefully canvassed.

It is also expected that other countries of the world facing similar crisis and having idle capacity like Nigeria would quickly adopt the prescriptions in Nwankwo’s seminal work for the turnaround of their economies and prosperity.

Of course, this book should also be a must read for undergraduate and graduate students of Economics in Universities in Nigeria and elsewhere in the world.