Nigeria And The Debt Trap
All the indices reinforce some major problems ahead, argues Sam Nwokoro
In recent time, the issue of Nigeria’s current debt stock has attracted both local and international attention. One of the latest causes of renewed debate over Nigeria’s debt portfolio is the recent decision of the Senate of the Federal Republic to deny the loan request of Kaduna State Government as prepared by governor Nasir el-Rufai. The senate was concerned that Nigeria’s debt stock was becoming unsustainable and that most states in the country have borrowed heavily abroad, increasing the national debt stock, even as virtually all of them have no full-proof repayment structure in place to hedge those loans against default.
Coming shortly after recent disclosures that national debt stock has hit some N7 trillion, roughly about $20 billion dollars and more than 50 per cent of them incurred by the states, the anxiety over the size of the debt is understandable and justified.
Recently, the International Monetary Fund (IMF) chief, Christie Lagarde and the World Bank, after analysing Nigeria’s developmental pattern, her domestic problems and revenue-generating capability raised the alarm over the sustainability of Nigeria’s debt and cautioned that borrowed funds be properly utilised for programmes capable of generating enough returns to repay them. It was not only Lagarde that had made comments over the matter.
Before her, immediate past US Secretary of State, Rex Tillerson had advised the Nigerian government about the type of loans and type of places she obtains such financial grants. Tillerson worried that most of the grants Nigeria receive from China especially were not so much in the long term interest of Nigeria, and in due time Nigeria risks losing those upscale PPP projects being undertaken with Chinese loans in the event of default if due diligence is not paid about which projects to spend the grants on.
Last March, former Central Bank of Nigeria Deputy Governor, Professor Kingsley Moghalu raised similar alarm weeks before Tillerson’s. Implicit in Moghalu’s concern is that the policy behaviour of the government of today, is not-so-fantastic public finance management profile, the size of revenue stream and the size of revenue lost through corruption and mis-prioritisation, her seemingly unabating security challenges and the cost implications- talkless solution timelines for them - when juxtaposed alongside Nigeria’s debt redemption capability puts the government moody, not cheery.
However, Finance Minister Mrs Kemi Adeosun along with CBN Governor, Mr Godwin Emiefiele keeps mesmerising Nigerians that there is no cause for alarm, that the foreign reserves are picking up, as well as the excess crude account, the liquidity ratio and other fundamentals. But they all know that they are talking in the manner public officials speak when they are in positions—to impress both internal and external stakeholders. But deep down, they know that all is not well, and their panic is reflected in the desperation with which they do all kinds of internal fire-brigade: stepping up tax drives, even creating new windows, hunting for looted funds-even if with arbitrary rights abuse-prone methods and other gimmicks. But the question informed people are asking is: are these panic steps durable, sustainable and tangible bulwarks when those debts mature? There is obvious hyper-optimism in all of this not-to-worry posture of the government.
One: just like the recently rejected Kaduna State loan request by NASS, nothing on the ground shows that both the FG and the states have projects capable of generating even up to 30% of the value of the loan amount they have expended on publicly funded projects in the past three years since May 2015 to date compared to the foreign loan components.
Two: the optimism overlooks the current and unfolding scenarios likely to upgrade the vulnerability of repayment preparedness or structure if government has or is conjuring one. Recent reports indicate that USA crude oil exports to some of Nigeria’s main crude oil market hubs in Europe and Asia are gradually climbing up. S
uch US hunt for crude and shale gas markets may very well extend farther into China, some Middle East countries, or even North Korea as Washington steps up diplomatic offensives aimed at hedging in
Nothing on the ground shows that both the federal government and the states have projects capable of generating even up to 30% of the value of the loan amount they have expended on publicly funded projects in the past three years to date compared to the foreign loan components
unfriendly regimes in the troubled fundamentalist-infested Middle East countries like Syria, Jordan, Iran; even North Korea, Poland, Philippines, Nicaragua, Vietnam and some of the current crisis flash points. For a Trump regime that has made “America First” its cardinal objective till the next seven years, obviously creating more markets for America’s now surplus shale gas and crude from both US shores and outside would be the direct result of Washington’s present bellicose attitudes both in commerce and geopolitics in global stage today.
The present US Government is not minding if Washington is perceived less as an economic power for as long as she under Trump is succeeding in pushing US produce and services to as many off-shore markets as possible to close what Trump perceives as trade gaps against America. With this scenario Nigeria can well see that she is gearing for fiercer competitive environment in courting offshore markets, investments, capital and even development partners in the myriad PPP projects she has initiated or is still initiating - in the days ahead.
Thirdly, for all the hues and cry about loot recovery and generating internal revenue, in actual terms, there cannot be seen enough tangible projects capable of generating substantial cash which it is capable of finishing up by 2019 when it would seek for re-election. How come for whole three years no single tollable federal highway has been successfully completed by this administration-well after four consecutive annual budgets - 2015(partly), 2016, 2017 and 2018? And we are hearing about a whopping N98 billion being voted for just an alleged repair of just a city-link bridge that would not be tolled while other trans-continental and inter-state highways received little or no mention in the 2017 appropriations that would soon round off in less than two months. Talk of priority. If this is not poor record of performance, then what is? At least when it comes to internal revenue generation, toll-gate source is one simplest and less cumbersome approach.
Another factor discernible in Nigeria’s public expenditure pattern which aggravates the fear of debt default is the over-dependence of the component states - the largest borrowers on the federal government for all kinds of allocation, bailouts, loan guarantees, et al—without the federal government’s corresponding leverages and compliance enforcement capability over how the states manage and spend these loans, allocations and bailouts. Thus debt repayment default is a fait accompli.