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“MUGU” smiles back into debt trap!

By Henry Boyo

In an article published on 29/12/05, titled ‘Compassionate Debt Relief or Paris Club 419?’, this writer observed as follows: “Despite the effusive enthusiasm of this Administration, some Nigerians refuse to celebrate the conditions for the recent ‘debt relief’ in which Nigeria will see $18bn of its total debt of over $30bn cancelled on condition that it pays the remaining $12.4bn between now and March 2006.”

 “Furthermore, some analysts question the equity in a transaction in which a ‘beggar neighbor’ borrows less than $10bn and yet still owes his affluent master over $30bn, even after over $17bn has been repaid!”

In another article on April 21st, 2008, titled “2008 Budget, More Questions than Answers”, notable flaws that will lead to unmitigated failure in the proposed budget were identified as follows: The National Assembly appears totally oblivious of the disastrous impact of sharing substituted naira for our distributable export dollar revenue every month; indeed, industrially hostile interest rates of around 20%, irrepressible domestic fuel price, despite rising external dollar reserves, are all symptoms of substitution of Naira allocations for our dollar earnings. This strangulating framework unfortunately compels the payment of over N372bn interest payments yearly!

Nonetheless, only a simpleton will endorse 20% interest payment on acclaimed soft loans; for example, on pg 112 in Guardian newspaper edition of 22/5/05, Abraham Nwankwo, the Director General of the D.M.O., confirmed that “…84% of the Nation’s $3.7billion external debt is accounted for by loans from concessionary sources with very low interest rates around 0.5%, so that funds can be deployed to social infrastructural programs such as education, health and agriculture, which have extended gestations”.

“Curiously, however, the 2008 budget earmarked interest provision of about $600m (i.e. about 20% of principal) for the existing External loan of $3.7bn!  This is clearly outrageous and certainly out of sync with the traditional low cost for such risk free sovereign loans. It is also inexplicable that CBN would seek domestic loans at such high rates from the same 14 banks in which it recently liberally placed $14bn of Nigeria’s reserves.

Another article titled “Increasing National Debt: NASS Beware”(26/01/2009), cautioned on the bloated domestic debt, especially when there is little on ground to show for these debts. Furthermore, the imminent US $500 bond regrettably also remains untied to any verifiable project that would improve social welfare.

Consequently, we prayed that the National Assembly would stand on the side of the people by refusing to approve Mr. President’s budget request to exceed the sustainable fiscal deficit of 3% of GDP that is consistent with international best practice, without recourse for further approval by NASS!”

A follow up article titled ‘External debt: at what cost?’ (02/02/09), also warned that “we should not be surprised if external debt more than doubles when next Mr. President presents 2010 budget, as the $500m bond may be supplemented by IMF’s present offer of a $3bn loan, paradoxically at a time when CBN is busy selling $3bn+ out of depleting reserves to Bureau De Change (BDCs) monthly, without minding the economic dislocations caused by facilitating capital flight.

In another piece titled ‘Budget 2010: “mugu” smiles back into debt trap!’(26/04/10), this writer had observed as follows: “While the controversial debt we exited in 2006 took well over a decade to accumulate, it seems that we have become much more experienced in such pursuit, as it required just over three years by 2010, to consolidate a fresh debt burden projected at well over $30bn.”

Indeed, in a report titled “Debt Servicing to Gulp N517bn in 2010” (see Punch 1/12/2009), the Debt Management Office (DMO) (see “Nigeria’s Debt creation Office”, confirmed that the total domestic debt was about N2.5 trillion by October 2009.

Incidentally, the 2009 budget had set aside N283bn (8%) for domestic debt service, but this amount has almost doubled to N517bn in the 2010 Appropriation Bill before NASS.  Although the N283bn service charge in 2009, did not distinguish between external and domestic components, Dr. Nwankwo, confirmed that the sum of N38.92bn will be required to service our external debt of $3.7bn while the balance sum of N478.15bn will cover service charges for domestic debt.

The much higher provision for domestic debt service must have become necessary because of the N1,500bn projected deficit in the 2010 Appropriation Bill; consequently, our total domestic debt is projected to rise to N4000bn (N2,500bn + N1,500bn) i.e. over $27bn at N150=$1.”

“Thus, the consolidated sum for domestic and external debt would exceed $30bn ($27bn + $3.7bn) by 2011!!  No, you are not wrong for gasping in amazement!  Yes, we have been here before the debt exit, and sadly, once again, there is nothing on the ground to show that the monies borrowed on our behalf have been wisely spent!”

In another article published on 19/03/12 and titled ‘National Assembly fiddles as debt burden cripples’ this writer also observed as follows: “By mid February, 2012, President Jonathan requested the National Assembly’s approval for a loan of $7.9bn for the completion of various pipeline projects from a motley of International Development Banks.

Again, the consensus of public reactions is that Nigeria should not accept this loan; as the agony of the controversial $12bn-plus penalty, paid to exit an external debt of about $30bn in 2006 is still palpable, particularly because, the promise that savings from the debt exit would be used for improving social infrastructure and reduction of fiscal deficits have remained unfulfilled.”

“Invariably, by 2012, the components of Nigeria’s debt profile have since exploded from less than N1tn in 2006 to N5.62tn for domestic debts.  Despite the sharp rise, there is no structural evidence for the bloated debt burden. The external debt burden, on the other hand, now hovers around $3.5bn.

However, President Jonathan’s External loan request of $7.9bn will bring total foreign debt to $11.5bn, even though the destined application of this loan is evidently inappropriate, as it is not in consonance with government’s transformation agenda of leaving business in the hands of the private sector. Nevertheless, the favorable disposition of Dr. Okonjo-Iweala, who incidentally also midwived the Paris Club debt exit 6years earlier, may presumably be best explained by the alleged very low cost of this loan, when compared with 15%+ interest rate that much of government’s domestic borrowings now attract.”

Four years down the line, President Buhari’s present intention to seek an External loan of $29.9bn between 2016-19, will inevitably spike total debt well beyond $90bn! (See also “To concession is more responsible than to borrow $29.9bn”in Punch and vanguard editions of 07/11/16). All articles referenced above can be cited at



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