By Daniel Idonor
ABUJA — WORRIED by mounting fears of a possible return to the dark days of avoidable huge indebtedness to the Paris Club which once stood at $30 billion, the Federal Government, yesterday, resolved to constitute a presidential committee that would work out realistic modalities for future external borrowing by both the Federal and State governments.
The weekly Federal Executive Council, FEC, which met for several hours at the end of which this decision was taken, also resolved that henceforth only projects with direct bearing on the lives of the people would attract presidential approval to be funded through external borrowing.
Briefing State House Correspondents at the end of the meeting, the Minister of State for Information and Communications, Mr. Labaran Maku, said the committee has two weeks from yesterday to turn in its report to government.
“The President directed that national economic management team should come up with updated guidelines for external borrowing. The decision was made by the president specifically to ensure that Nigeria borrows only for sole projects that will have immediate impact on the economy,” Maku said.
The minister said: “The president frowns at a situation where after exiting the London and Paris Club of creditors, Nigeria should not again return to the situation of the past. Therefore external borrowing must be tied to productive activities that generate revenue, improve economic development, increase Gross Domestic Product, GDP, and increase employment in the country”.
He stated further: “Loans that are not targeted at development projects will be frowned at. So the president directed that there is need for this general review and that every loan that Nigeria is going to take subsequently, whether Federal Government or individual ministries, department and agencies, MDAs, or state governments, there must be thorough analysis of these loans as regards their impact on the economy”.
The President, Maku said, “also directed the Debt Management Office, DMO, to constantly update the debt status of every state government and the Federal Government so that any state that proceeds to acquire a new loan, we should be able to take a look at existing debt profile to ensure that it has the capacity to pay eventually, therefore from today onwards, the question of new debts, new external loans will be tied to the new guidelines to be developed by the National Economic Management Team”.
The minister noted that President Jonathan “was very emphatic about this development because the Nigerian economy is in need of productive activities, a situation where loans might be taken that are not directed at development or increasing infrastructure or increasing the general volume of goods and services in the economy will not be in the best interest of Nigeria”.
“Approval was granted by council for the Federal Republic of Nigeria to subscribe to the Sixth General Capital increase, GCI-VI, of the African Development Bank, ADB, and choose the option of paying for the allotted shares in eight years.
Council equally approved the payment of N6.5 billion (USD43.341million) per annum for eight years, starting from 2010 with the N1.7 billion provided in the 2010 budget in addition to the issuance of promissory note for the balance of N4.8 billion.”
The ADB offered Nigeria 386, 021 unit of shares from its Sixth General Capital Increase out of which 23,215 constitutes the paid up portion.
The value of the paid up portion of 23,215 is USD346.730million which is about N52.01billion.
The sum of N1.7 billion has already been provided in the 2010 budget for this purpose while the remaining balance of N4.8billion for this year will be paid through promissory note.
The minister of Niger Delta Affairs also brought a memo to council seeking approval for the award of contract for the Dualization of Port Harcourt/Aba Expressway_Obehia –Azumini_Ukanafun (50km) Road in Abia/Akwa Ibom states and the Engineering Construction for section II which stretches from Akwete_Ukanafun.
The construction of this road is a major post amnesty intervention programme of the government for the Niger Delta region. The execution of this project will create employment opportunities, curb restiveness and generate wealth through increased socio_economic activities of the region. It will also enhance safety of lives and driving comfort of road users.
Due to paucity of funds for the full project take off, the ministry had phased the project implementation starting from section 1, km0+000 (Obehia junction to Akwete) earlier awarded in the sum of N13billion, so that the available Budget could meet the 15 per cent.
The minister of health through a memo sought council’s approval for the award of contract for the procurement of 100,000 doses of Cerebrospinal Meningitis (CSM) ACWY 135 Vaccines for the National primary healthcare Development Agency (NPHCDA), which was granted.
Nigeria, it would be recalled, had in 2006 paid off its $4.6bn US dollar Paris Club debt owed the Paris Club is a group of 19 lenders including the UK, Russia, and Germany, thereby becoming the first African nation to settle with its official lenders, in a move to clear the way for greater government spending on infrastructure, healthcare and education, thereby attracting greater foreign investment.
Despite the $4.6bn payment then, Nigeria still will owe about $5bn to other lenders, including the World Bank and the private sector even when the country is one of the world’s biggest oil exporters, but it is also one of the world’s poorest countries, with the majority of the population living on less than $1 per day.
Nigeria’s debts date back to the early 1980s, and had ballooned to more than $35bn due to penalties and late fees during the 1990s, while in 2005, the country agreed to a repayment plan that was a mix of cash and debt relief, backed by the country’s burgeoning oil revenues, with an agreement to pay the Paris Club $12.4bn (£8.2bn) in exchange for the remainder of its $30bn official debts being written off.
Nigeria’s plan to pay off its debt and restructure its economy was approved by the International Monetary Fund (IMF) earlier this week. The debt repayment was a key part of the economic reform plan of the then President Olusegun Obasanjo, who is also planning a string of privatisations, tax reform, and greater transparency in order to boost the economy and attract foreign investors.
Since the removal of Nigeria the international credit blacklist, the country has credit ratings similar to other emerging market countries such as Turkey and Ukraine, meaning that he government is now able to borrow money on international capital markets on favourable terms.