You use N5 out of every N10 on ground to service debt and IMF is clapping for you — Mailafia
Dr Obadiah Mailafia, a former Deputy Governor of the Central Bank of Nigeria (CBN) and the presidential candidate of African Democratic Congress (ADC) in the 2019 elections, disagrees with Mr Ben Akabueze, Director General of Budget Office, on President Muhammadu Buhari’s $29.6 billion loan request to the Senate.
By Chris Onuoha
Many development experts are of the opinion that there are some critical infrastructures that you cannot fix with your daily earnings. The 8th Senate turned down the $29.6billion loan request at that time but the President is bringing it back. What are your views about the claim that the plan is to fix infrastructures? Is it a good plan?
Mailafia: Well, let’s put it this way. Our infrastructure needs’ are very huge, depending on who you listen to. In fact, our infrastructure deficit in terms of funding would require something like 60 – 70 billion dollars every year if we really want to meet our needs, and, of course, if you look at it, our budget is never more than N10 trillion, about 25 billion dollars every year. The gap is very huge and nobody is debating that. And we have to be realistic that a lot of this gap has to be filled through borrowing,
whether internal or external. What I want to say is that what is happening is very alarming. This government inherited a debt exposure of not more than 5 -7 billion dollars in 2015. Now it is 84 billion dollars which is N25 trillion. It is huge amount. And you ask yourself, what has this money really been used for? We were involved in the debt negotiation with the Paris Club in 2005 and this led to our exit from debt trap and, at that time, our total national debt was not more than 36 billion dollars. Even then, we were crying wolf and saying this thing was impossible, that we needed debt relief. And we negotiated and paid it off and it was very painful. But we succeeded in exiting from that and within a space of five years to have accumulated a staggering debt is a matter of great concern. The principle is not whether government can borrow. The issue is what are borrowing for and is it enough to make a blanket statement like for infrastructures? No, I would want to see borrowing for specific projects, projects-linked funds such that preparation for the projects would have been done to an advanced level…like we ought to know what is going to come out of the railway, the power station and we have proper funding analysis. So the approval will be for specific projects. Don’t forget that the first loan we took in 2015 was 1.3 billion IDP loan for the North-East. I have been to the North-East a couple of times and there is nothing on ground to show for it. Therefore, I find the whole proposition (of $30bn loan) very unsettling, dangerous and unpatriotic.
If you look at what is happening for example in the rail sector, and, perhaps, what Mr Babatunde Fashola, the Minister of Works, is doing in terms of road infrastructure like the Second Niger Bridge and the Lagos-Ibadan expressway, are you encouraged to say it makes sense to borrow?
Mailafia: I am worried that you mentioned the Second Niger Bridge especially because a country that is almost 60 years still has to borrow to build bridge. Why must we do that? As for railway, I can understand. We can borrow but then we have some intellectual capital to do it because there are millions of people working in the railway, some of them old now, tired and some dead. But we have some with technical knowhow that we can use to develop our steel rolling industry. They will help us design and our youths do the rest. Why must we borrow such staggering amount?
Mr Akabueze, how much are we looking for that the President wants to borrow? The figures are not well presented. Is it $30billion or more?
Akabueze: There is a medium term borrowing plan and there is annual borrowing plan for the budget. For the 2020 budget plan, the deficit that needs to be financed with borrowing is 1.6 trillion naira. And that is the immediate request I believe that the President would like the Senate to address. That 1.6 trillion is between foreign currency and domestic borrowing components almost evenly.
If you look at our debt stock, it is about 25.7 trillion as of October or so. If 1.6 trillion is approved, that means we are going to about 27 trillion. The question is, what are we borrowing for? Do we have specific projects that the President is targeting to fix with this borrowing?
Akabueze: Essentially, fiscal responsibility tells us we should borrow for capital expenditure, unless there are exceptions in circumstances where you can do otherwise. Yes, when you look at the capital budget, the amount you have in statutory transfers is N2.1triliion and when you are planning to borrow N1.36 trillion, your target is the capital component of the budget. This is the aggregate cap for borrowing, and within that cap for instance, the Debt Management (Office) has to …there are instruments that they can use to determine whether it is the project type, bilateral or multilateral debt, or whether it is concessionary debt from a bank or AfDB or other sources. These are tied on specific projects.
But you have not spoken on this specific request by the President and what project is it for?
Akabueze: The capital budget includes thousands of projects and the debt can be used for any of those projects in the budget as long as it is there. What I am saying is that, at the point of cementing the transaction, that is when a loan is tied to a specific project as it may be necessary. At this point in time, it is not necessary to tie the aggregate sum.
Can you say this borrowing (loan) is what Nigeria can afford?
Akabueze: Bi-annually, we do debt sustainability analysis and that process is led by the Debt Management Office. And we would not be proposing to do any borrowing if it is not sustainable. So, we need to move away from the sentimental discussion on this budget and speak out facts. As you have heard us speak and the Minister of Finance has repeatedly said, lately, we do not believe that we have debt problem or sustainability problem yet. We have been in a serious revenue problem which, if we do not fix, will lead us to debt sustainability problem and that is why government is doing everything now, taking actions on several fronts to tackle the revenue problem. Right now, the one ratio that is of a major concern to everyone is the debt service to revenue ratio. When you fix the revenue regulator, the debt ceases to be a problem.
That seems to be the problem everybody is talking about. What is the way out Dr Mailafia?
Mailafia: I have a great respect for Mr Ben Akabueze but he is totally wrong and he is the one being sentimental. Let’s look at the facts. The facts on ground show that you are using five naira out of every 10 naira on ground to service your debt and IMF is clapping for you that you are doing well, that your GDP is one of the lowest in West Africa. Who are you competing with in West Africa? We should be competing with Brazil, Indonesia among others. These are our real competitors. We don’t have debt crisis yet. Anybody that is using five out of every 10 naira that he earns just to pay loan, and a lot of our loans have been for feeding alone, is a compound fool indeed. In our situation, I am not saying that we should not borrow, but we must have all the facts and analysis of all the money borrowed, I mean 80 billion dollars borrowed, that’s not a joke.
Ben Akabueze: We are working hard. We have debt problem that we need to fix. We have developmental challenges that will make us borrow at this time. When you do one thing, people complain, you do another, they complain; there is no other way to generate revenue than what we are doing.
•Exchange first aired on Channels Television