November 6, 2017

Experts take on FG on proposed $5.5bn loan for infrastructure development

Experts take on FG on proposed $5.5bn loan for infrastructure development

(L-r) Ag. SGF, Habiba Lawal; Vice President Yemi Osinbajo; President Muhammadu Buhari; Justice Minister, Abubakar Malami; Minister for Agriculture, Ausu Ogbe and the Minister of State for Agriculture, Heineken Lokpobiri singing the National anthem during the Federal Executive Council Meeting at the State House, Abuja. Photo by Abayomi Adeshida 04/10/2017

Nigerians, especially economic experts, on Monday expressed concern over the Federal Government’s intention to borrow 5.5 million dollars to fund some capital projects captured in the 2017 budget.

President Muhammadu Buhari presented a four-page letter to the Senate which showed that the proposed borrowing was for the implementation of the external borrowing approved in the 2017 Appropriation act.

However, this is not the first time the government is borrowing to fund components of the 2017 budget.

The government had also raised 300 million dollars through a Diaspora Bond issued in June, 2017.

On the domestic front, the government also raised N100 billion through the issuance of Sukuk bonds to facilitate the construction and rehabilitation of 25 priority road projects across the six geopolitical zones.

Each zone had an equal allocation of N16.67 billion for the projects.

The contractors handling the projects include Arab Contractors Nigeria Limited, CCECC Nigeria Limited, CGC Nigeria Limited, Dantata and Sawoe Construction and Gitto Construction Generalli Nigeria Limited.

The others are Salini Nigeria Limited, Mothercat Limited, RCC Nigeria Limited, Setraco Nigeria Limited and Eksiogulari Nigeria Limited.

An Inquiry by the Newsmen  from the the Director-General, Debt Management Office, Mrs Patience Oniha, showed the proposed 5.5 billion dollars would still be within the country’s debt to GDP ratio limit of 19.39 per cent.

She said that the borrowings comprised two components mainly 2.5 billion dollars as new borrowing and three billion dollars for refinancing.

“The first component of 2.5 billion dollars represents new external borrowing provided for in the 2017 Appropriation Act to part finance the deficit in that budget.

“It will be recalled that the 2017 Appropriation Act provided for new External Borrowing ofN1.067 trillion or 3.5 billion dollars at an exchange rate of N305 to a dollar.

“Out of this amount, 300 million dollars has been raised through a Diaspora Bond that was issued in June 2017 leaving a balance of 3.2 billion dollars out of which 2.5 billion dollars is to be sourced through a Eurobond Issuance,” she said.

Oniha further explained that the 2.5 billion dollars proposed Eurobond, would be used to finance critical road and rail projects included in the 2017 Appropriation Act.

Some of these projects are construction of a second runway at the Nnamdi-Azikwe International Airport, some rail projects including Lagos-Kano, Calabar-Lagos, Kano-Kaduna, Ajaokuta-Itakpe-Warri, Kaduna-Idu and the Bodo-Bonny Road with a Bridge across the Opobo Channel.

She also said that the second component of the loan would be used to repay some of the existing domestic debt.

It was  gathered that that this was purely a portfolio restructuring activity that would not result in any increase in the public debt as it is simply an exchange of one type of debt (Domestic) for another (External).

The DMO stated that the Domestic Debt Stock as at June 30, 2017 included about N3.7 trillion of Nigerian Treasury Bills (NTBs) with tenors of less than one year and at interest cost of about 17 per cent per annum.

Oniha said the short term nature of the NTB stock and the high interest rate, exposed the public debt to refinancing risk and high Debt Service Costs.

Thus by converting them to External Debt, the tenor would be extended to at least 5 years while the interest cost would drop to about seven per cent per annum.

This would lead to a savings in Debt Service of over N90 billion per annum.

In spite of the reasons given for the borrowings, many questions have come up regarding the need to borrow to fund the budget when there were indications that the economy was improving.

Observers say some questions which the government has to answer include the fact that the budget was predicated on the benchmark oil price of 45 dollars per barrel, but the price of the commodity has gone above 50 dollars per barrel.

Why can’t government use the surplus to close the gap?

Also, there are reports about trillions of idle funds at the CBN; why can’t such money be used to finance the budget deficit?

An Economic Analyst, Prof. Uche Uwaleke, who is also an Associate Professor of Banking and Finance at the Nassarawa State University, said  “the over N6 trillion in the Treasury Single Account (TSA) with the CBN belongs to federal Ministries, Departments and Agencies (MDAs).

“The government has actually been taking money from the CBN to finance the 2017 budget against the security of money in the TSA.

“Foreign reserves represent a country’s stock of foreign currency and are primarily used to defend the local currency.

“The higher the foreign reserves, the stronger the Central Bank is in a position to maintain stability in the Forex market.

“So, using foreign reserves to finance the budget will spell doom for the exchange rate”.

“If the FIRS collects up to N7 trillion in tax revenue, it is shared by the three tiers of government with the Federal Government taking about half while the rest is shared by the states and local governments.

“The bulk of the money collected by the FIRS comes from Petroleum Profit tax and Company Income tax which are paid into the federation account to be shared,” he said.

On the call to have a holistic national budget, capturing budgets of high net agencies such as the CBN and the FIRS, he said that it was not relevant to incorporate them into the federal government’s budget.

“They fall under government independent revenue. These agencies are expected to remit their operating surpluses to the federal government,” he said.

Observers are of the opinion that criticism will continue to plague government’s decisions until actual changes are seen in the economy.

Looking at the revenue sources of government versus expenditure, critics argue that for the government to be able to deliver on its promises to build more roads, rehabilitate the airports and improve power, it has no choice but to continue to borrow.

Another expert, Dr Azuka Chukwuma , in Abuja, criticised the move  to secure the loan, saying government had no reasonable need for such facility as it had enough internal funds to finance the 2017 budget.

Chukwuma, a consultant with Roifilia  firm, said “ government has told us that it has  been making lots of discoveries from politicians who they described as corrupt.

“We have enough cash already in the country; why not use it instead of borrowing. We have enough money in our foreign reserve and also some idle funds in the CBN, why not use it.

“In the CBN today, we have unclaimed dividend warrants that have not been claimed, what is that amount of money doing?

“Personally, obtaining this loan is only going to put Nigeria in another backfire where we will suffer and we will not realise what we are suffering from.

According to Chukwuma, the country’s economic team has to be very active, it is supposed to harness and come up with areas of priority for the government and also determine when to borrow.

Chukwuma said that there were millions of Nigerians parading the streets without jobs.

According to him, over 70 per cent of foreign businesses in the country have been shot down due to unfavourable business environment.

He urged the government to invest more on capital projects that would help create jobs for the people and also ensure favourable business environment to attract more investors into the country.

Also,  another expert, Charles Nwekeaku, an Associate Professor at the Nassarawa State University, Keffi, said the loan would mortgage the future of both present and future Nigerians.

“ I think the government has not done the full analysis of that foreign loan and as far as I am concerned, there is no bank that will count that money and give them cash.

“I would rather suggest that the government looked inward to source for funds to finance the budget and we should be prudent and make do with what we have rather than borrow.