By Les Leba
Lately, the Federal Government’s enthusiasm for further national debt accumulation has become more strident, especially after the IMF’s suggestion that Nigeria is currently under-borrowed, and therefore recommended increasing the borrowing threshold of 20% of gross domestic product to about 56% of GDP.
On the heels of the IMF’s recommendation, Dr. Abraham Nwankwo, the Debt Management Office (DMO)’s DG called for a restructuring of the national debt, because the interest payable on domestic debt (which constitutes 88% of total debt) was too high, as it should not normally exceed 60%!
Consequently, the DMO decided to establish a sinking fund for retiring local debts as they mature, and also seek to borrow more from foreign sources at cheaper rates. Government has therefore put the first leg of this strategy in place, as it has provided for N100bn sinking fund annually to pay domestic debts in 2013 budget.
Curiously, at this rate, it will require about 60 years to repay the domestic debt of N6tn! Similarly, in consternation, CBN Governor, Lamido Sanusi, paradoxically also decried the reality that we are borrowing more money today at high interest rate for risk-free sovereign loans, while leaving the debt burden for our children and grand children to pay!
The oppressive burden of domestic debt has also fostered the alternative strategy to borrow externally, at cheaper rate of interest. In reality, so long as loans remediate our critical infrastructure deficits and also build our institutions and human capacities, over the years, the positive returns from such borrowings will ultimately sustain the liquidation of these debts painlessly!
Nonetheless, the DMO boss is unperturbed by the poor social impact of our debts, as Nwankwo noted that , “the time of high borrowing from the domestic (market) has served its purpose, which included developing a market structure and culture for long term savings and investments. “
Evidently, the establishment of the DMO in 2006 was not primarily to fund critical infrastructure but to develop a long-term bond market, which has now spiralled domestic debts above N6tn, with oppressive service charges!
Incidentally, we had criticized the narrow and unhealthy functional object of DMO’s borrowing as reflected in its prospectus, in an article in December 2009, titled “Budget 2010: Mugu Smiles Back into Debt Trap”.
The Minister of State for Finance, Dr. Yerima Ngama, has also confirmed that his Ministry’s strategy for addressing the debt imbalance and the high cost of servicing domestic debts included four options; i.e., long term borrowing to pay short-term debts; long-term borrowing that could be used to pay long-term; accessing of concessionary windows as well as borrowing outside to pay domestic debts”.
Obviously, the underlying deduction from the preceding, is that in spite of government assurances, our capacity to service and repay our debt has become a critical issue, as the above options do not relate to the objective of impactful enhancement of infrastructure or social welfare.
Indeed, in November 2012, former Presidential Candidate of the National Action Council, Dr. Olopade Agoro, was equally worried at our cost of borrowings, and observed in a release that “it was high time we wake up as a nation to the reality of the fact that we cannot go on borrowing at 15% rate of interest, while deposits barely attract 3%, and expect to make headway economically and productively)”.
The President of Lagos Chambers of Commerce and Industry (LCCI), Goodie Ibru, in similar vein, also observed that “The high yield federal government bonds and treasury bills contributed to the high level of debt service of almost N600bn in the 2013 budget”, while noting that “this amount is equivalent of about 36.5% of our capital budget”!
The LCCI boss is equally worried that the debt figures inappropriately excluded billions of naira owed to local contractors by MDAs and the additional N4,000bn bonds issued by AMCON!! Consequently, the LCCI recommends that all these debts should also be captured so that the true position of public debt and its sustainability would be better appreciated.
On his side, Osita Okechukwu, the Secretary of the Conference Nigerian Political Parties observed that it is curious that Dr. Ngozi Okonjo-Iweala, who midwifed the controversial $12.4bn pay out to the Paris/London Clubs in 2006, when the debt GDP ratio was less than 30% is incidentally now the driver of the proposition for increasing debt accumulation, with her Ministry’s demand for a fresh $9bn loan, which would push total external debt alone above $15bn!
Okechukwu, also corroborates concerns expressed in this column in an earlier article in August 2012, titled “Why are We Still Borrowing?”, when he decries “How come a country, which normally earns over $20bn from oil and gas, N5tn from domestic tax revenue and almost a trillion naira from customs duty, with an excess crude account of almost $10bn and Central Bank’s own reserves of over $40bn still remain embattled with 70% of Nigerians living below the poverty line”, the CNPC Secretary, consequently, therefore concluded that Nigerians have no good reason to borrow, and in fact, should stop borrowing!
Osita Okechukwu may have said it all; it’s good to borrow, if such loans are directed to socially productive ventures; but it certainly does not make sense to borrow to repay existing debts! Indeed, it will be a great comedy plot, if not for the impact of deepening poverty nationwide, that, in spite of the existence of over N10bn in our excess crude account and over $40bn of CBN’s self-styled idle “own” funds, the National Assembly obviously has no qualms that the DMO will additionally borrow over N1tn domestically in 2013 at outrageous rates of interest and similarly add about $10bn external loans also secured, at rates of interest which exceed the rates paid on our idle/low-yield excess crude dollar account and CBN’s dollar holdings.