Prof. Uche Uwaleke of the Nasarawa State University has urged the Federal Government to expunge the 4.5 billion dollars Euro bond component of the proposed 29.9 billion dollars external loan, given the current economic situation in the country.
President Muhammadu Buhari had sought the approval of the National Assembly for the proposed loan to execute key infrastructure projects across the country between 2016 and 2018.
The borrowing plan comprised proposed projects and programmes loan of 11.274 billion dollars Special National Infrastructure projects, 10.686 billion dollars Euro bonds of 4.5 billion dollars and Federal Government budget support of 3.5 billion dollars.
Uwaleke, Head of Banking and Finance Department of the university, gave the advice in an interview in Abuja.
Uwaleke said that given the present economic circumstances, resorting to external borrowing was the best option for Nigeria.
He, however, said government should not issue Euro bonds now as part of the borrowing plan at the international capital market,.
He said the bonds were likely to be under priced in the global market.
He also said the current recession was not favourable to Nigeria issuing a Euro bond at the moment.
The don also said favourable ratings were yet to emanate from big global rating credit and capital market service agencies such as Fitch and Moody, American stock agencies.
Justifying further the need for external borrowing, Uwaleke said Nigerians could not afford an increase in tax, neither should the nation be selling its critical assets to raise funds to stimulate the economy.
According to him, the huge infrastructure gap in Nigeria justifies the size of the three-year borrowing plan, noting that the country has the need for foreign borrowing, given the low external debt to GDP ratio.
“The capacity to service public debt may be weak, considering the high debt service to revenue ratio at over 30 per cent.
“But this is mainly due to the huge domestic debt in our portfolio, over 80 per cent and the high cost of servicing it.
“So external debts are welcome, especially when they are sourced from multilateral bodies like the World Bank and African Development Bank (ADB).
“They are largely concessional in nature with low interest rates and very long term.“
Uwaleke said the provisions of the Fiscal Responsibility Act 2007 should be adhered to when applying the proceeds of foreign loans, noting that it should be tied to projects.
“I expect to see the loans invested in infrastructure like power, rail and roads, in partnership with the private sector.
“Some of it should also be invested in agriculture so we can also earn foreign exchange from food exports.
He opposed funding education and health sectors with borrowed funds.
He, however, suggested that such sectors should be financed with funds coming in form of grants from donor agencies.
Uwaleke advocated the channeling of the recovered looted funds into social sectors of the economy, adding that only projects with the capacity to stimulate the economy and generate funds to pay back the loan should be undertaken.