By Les Leba
No rational person will decry communal debt accumulation if the proceeds were directly applied to the alleviation of critical areas of deprivation, such that the repayment terms and cost of servicing the loan pale into insignificance when compared with the social and welfare benefits which will be enjoyed by the community over time.
Conversely, every stakeholder should be rightly concerned when the debt burden rapidly balloons without any positive tangible or beneficial impact on the community after the consumption of the loan proceeds and the relatively heavy cost of servicing the debt appears out of sync with the cost of such sovereign debts elsewhere.
In spite of such negative costs to the society, it would smack of mischief, if the coordinators of the debt regime embark on a media offensive to extol their achievements in committing the community to a series of expensive and debilitating short and long term debts; such self adulation becomes odious propaganda when public attention is â€˜cleverlyâ€™ directed towards the quality of government debt as â€œguaranteed, competitive, with â€˜highâ€™ fixed interest incomeâ€Â to the holder rather than on the purpose or social benefits that would evolve from the debt accumulation. In focused economies elsewhere, such government borrowings are directly tied to specific projects, such as dam (Hydroelectric Power Stations), mass housing schemes, provision of educational or mass transit infrastructure, etc, etc.
Regrettably, in spite of our domestic debt tripling in value since the creation of our Nationâ€™s Debt Management Office (DMO) about four years ago, the coordinators of this spiraling debt cannot point at a single project which can be said to be directly financed from the bond proceeds. Nonetheless, the DMO continues to play up to our patriotic sentiments through paid advertisements to encourage us to part with our hard-earned money to government as a way â€œto actively contribute to the development of a culture of long-term saving and mobilisation of funds for the development of infrastructure and the real sector of the economyâ€.
The reality which is evident, even, to the blurred of vision is that in spite of over N2,000bn additional borrowings since the establishment of the DMO, our infrastructural base has further decayed and the real sector is now comatose!!
In spite of the nebulous impact of DMOâ€™s debt initiatives, the Agency in another advert funded from the peopleâ€™s treasury, congratulates itself, that in spite of the global financial crisis, it successfully encouraged investors to part with their moneys for up to 20 years, to the Nigerian government, and further massages the ego of the investor as a contributor â€œto economic growth and employment, thereby helping to reduce poverty, whilst fostering a diversified and self-sustaining economyâ€.
Of course, even the ordinary Nigerian who is being wooed by such sentiments knows that there is a wide credibility gap here! What, however, the DMO adverts do not tell us, is that the major patrons of such government debts are, in fact the banking sector, which is, in fact, the only group that can lend money to government in our present economic environment!!
It is open knowledge that poverty has eaten into virtually all homes in Nigeria, and possibly, less than 2% of our people have any surplus disposable income. In addition, DMOâ€™s media campaigns will not tell you that the attraction for government debts, particularly the bonds, is not because investors have more confidence in the Nigerian economy than other financial crisis ridden nations elsewhere.
The main attraction remains the double digit yields offered when the bonds from serious economies yield less than 50% of the Nigerian equivalent!
Furthermore, in spite of the excellent returns for such sovereign debts, the attraction for the banks is, of course, the reality explained in last weekâ€™s article, that invariably, the banks end up lending back to government, funds that are made possible by the same government in the first place, as the banksâ€™ capacity to lend is directly dependent on the value of governmentâ€™s monthly allocations, which are placed as deposits with the banks! The preceding analysis should convince a non-partisan observer that there is more than meets the eye in the DMO story as told in its media campaigns.
However, the DMOâ€™s latest syndicated advert titled â€œNigeriaâ€™s External Debt: the true positionâ€ actually takes the art of propaganda to the next level. In an earlier article titled â€œExternal Debt: at What Costâ€ in this column, we drew the attention of the National Assembly to some of the gross inconsistencies in the cost of servicing our national debts; we also in that article wondered why the approval of the National Assembly has never been sought for the series of debts incurred since the creation of the DMO as required by the Constitution.
If the DMO advertorial referred to above was an attempt to clarify those issues, then, it failed woefully in its articulation of the â€˜true positionâ€™ of our external debt! If anything, the DMOâ€™s â€˜public informationâ€™ on external debts raised even more questions than answers.
Let us now take a look at the first issue; i.e. the cost of external borrowing.
The DMO has consistently borrowed from the domestic money market at double digit lending cost, even though sovereign national debts, which are considered as safe and secure with little risk generally attract not much more than 5 â€“ 6% interest. In other words, Nigerians pay about 100% more for its sovereign debts than other focused economies. Thus, if about N300bn is earmarked for debt servicing according to the 2009 budget, prudent debt sourcing and management would save us about N150bn which can be applied to other areas of need or deprivation of our people.
However, if 10% or more percent interest is considered high for domestic debts, we wonder why the cost of servicing our external debt should also exceed double digit, since according to former President Obasanjoâ€™s 2007 budget, â€œTotal external debt stock outstanding as at the end of June 2006 stood at $4.8bn â€¦ made up of London Club $1.4bn, multilateral debts $2.7bn, promissory notes $0.6bn, other non-Paris-Club debts US$0.1bn. We have earmarked the sum of N61bn for servicing of our external debts â€¦.â€
Meanwhile, the DMO, in its advertorial under reference, agrees that â€œthe loans from these sources (multilateral agencies, e.g. World Bank, ADB, International Fund for Agricultural Department, etc) constitute about 85% of the countryâ€™s external debt stock as at March 31, 2009. It is pertinent to note that about 83% of the loans from multilateral sources are soft loans, with highly concessional terms, free of interest charges, service charge of 0.75% and long repayment periods of 40 years and above, including a grace period of 10 years.â€Â (Source: DMOâ€™s advert under reference).
So, the question is, why should the sum of N61bn (i.e. 12%) be required to service our total debt of $4.8bn in 2006? Besides, Obasanjoâ€™s external debt value of $4.8bn in 2006 differs markedly from the total sum of $3.544bn indicated in DMOâ€™s advertorial of August 5, 2009 as balance outstanding. The DMO fails to satisfactorily explain the disparity of over $1.2bn!
As if to complicate matters, Yarâ€™Aduaâ€™s 2008 budget indicated that â€œour total foreign debt stock now stands at about $3bnâ€ and notes that â€œthere will be no financial benefit from undertaking any restructuring or otherwise for paying these debts. We therefore earmarked the sum of N66bn for servicing our external debt in 2008â€. (i.e. 18% service charge).
The critical questions here are, why are the service charges for such multilateral debts which attract minimal interest, still so high, and why is the service charge increasing when the debt capital sum has decreased, according to Yarâ€™Adua, to $3bn in 2008? I recall that these anomalies were discussed in several articles in this column in 2008, and it was therefore a surprise that Yarâ€™Aduaâ€™s 2009 budget speech made no mention of debt servicing!!
Meanwhile, in spite of assurances by President Yarâ€™Adua in his 2008 budget speech, that there was no need for restructuring or paying these debts of about $3bn and also no approval from National Assembly for new debt, the DMOâ€™s public information advert of 5/8/09 indicates that the total external debt was $3.654bn as against Yarâ€™Aduaâ€™s figure of $3bn at end of 2007, and had further increased to $3.720bn by end 2008! The above disparities leave one to wonder whose figures (the President or DMO) regarding external debt balance could be accurate.
The answers to these issues of increasing debt service cost against declining total debt value are not satisfactorily answered by DMOâ€™s explanation of the dynamic nature of loan disbursement. National Assembly is requested to take a closer look at the relevance and effectiveness of the involvement of Debt Management Office in further debt creation for our country.
SAVE THE NAIRA, SAVE NIGERIANS!