By Dele sobowale
NOTE: Before launching into the substance of today’s article, permit me to repeat what was published last week. Some messages are so important, they need to be repeated many times in order to cross the threshold of peoples’ awareness of the dangers ahead for us as individuals and as a country. Here is the message.
NEXT WEEK: With crude oil price likely to stay below $40 per barrel and many crude loads unsold, the 2020 budget should not exceed N6trillion. Wait and see.
“IMF: Global Economy Now in Recession.
One of the leading global rating agencies, Standard and Poor’s (S&P) has downgraded Nigeria’s credit rating and that of four other oil producing countries – Mexico, Angola, Ecuador and Omar, further into junk territory, with a B-rating, down from ‘B/B‘, due to the plunge in oil prices” – ThisDay, March, 28, 2020 p 5.
S&P, is among the world’s leading credit rating agencies. Countries, states, large corporations seeking to raise loans from the global financial markets must pass through the acid test of S&P’s appraisal. As long as the intending borrowers stay above the B+ rating, they stand a good chance of obtaining the loans they need from a lender or consortium of creditors at agreed interest rates and tenure. With a B- rating Nigeria is now virtually shut out of the financial markets at a time when we need it most.
The first casualty of that slap in the face for this country is the $22.7 billion loan package which the rubber stamp Senate, passed without requesting for details. Some of the details have now emerged. See the table below.
The Federal Government, FG, under the ethnic and regional bigot, for whom millions of gullible South Westerners voted in the 2019 elections, had planned to spend 73 per cent of committed loan funds on the North and a mere 27 per cent on the South – which will nevertheless pay 80 per cent of the loan – if it had been sourced as planned.
For an economy and government managed by the most incompetent managers since independence, and one hooked on debt like drug addicts, that loan would have fetched about N7.2 trillion.
Granted, not all of it was meant to be spent on the current fiscal year, but, given Buhari government’s track record, it is a safe bet that most of it would have been drawn down by Christmas. And like David Copperfield, he would have returned to the Senate to ask for more. He would have got it. That is why he planted the Senate President there.
Buhari would have had some other co-conspirators in this dangerous venture – the Director-General, Debt Management Office, for long had unintelligently argued that Nigeria can assume more loans because the debt-to-GDP ratio is favourable.
Whether out of mischief or ignorance, the DMO has forgotten that debts are not repaid out of GDP but from current revenue. For a government which had failed in four full years to achieve up to 70 per cent of its revenue estimates, the magnitude of GDP is totally irrelevant. Nobody has demonstrated how foolish it was to rely on only one variable to determine whether to take on more loans than the FG itself.
Last week, Nigerians read this piece of bad news tucked into the inner pages of ThisDay Newspaper. Only lynx-eyed readers and economists could have grasped the implications of that disclosure.
The FG is now getting set to make a formal request to our creditors to allow Nigeria to defer re-payment of loans due and avoid outright default.
Suddenly, Nigeria, which apparently in the opinion of its FG could borrow indefinitely, is now at risk of its first loan default since 1999.
Incidentally, this nation suffered its first embarrassment of inability to repay its loans, as and when due, under Buhari in 1984. (Why for God’s sake must all the disastrous economic precedents be associated with this one leader?).
That milestone was the beginning of our slide into the debt trap from which Obasanjo/Okonjo-Iweala rescued us in 2004. Are we now on another economic escalator going down? The answer is “definitely yes.” Things are going to get a lot worse before they get better. Unfortunately, Buhari is not the leader to restore the Nigerian economy to health.
Finally, the FG asked Nigerians not to worry. If you believe that you will believe anything. The first time I made that statement was in 1994, when Abacha inaugurated his own Constitutional Conference, dubbed CONFAB by the media. Abacha had declared that he was starting another transition to civil rule “in which we, the Armed forces, will not be participants.” The delegates gave Abacha a standing ovation. The next Sunday I wrote those words. The next Monday, I was back in detention. “Are you saying the Head of State is lying?” That was the question thrown at me again. We all know what happened next.
Don’t believe them. Worry, but develop a plan for survival.
Advice to Nigerians
“Do all things by advice; and then you’ll have no cause to regret” – Geoffrey Chaucer, 1342-1400, VBQ p 5.
For individuals who are not wealthy, it is vital to cut your expenditure to the barest minimum in the next six months to one year. Three reasons inform this financial prescription. One, the recession will last at least nine months; perhaps a whole year. Two, hyper-inflation, which is sure to follow the economic stimulus being put in place by governments, for a number of reasons, will reduce your purchasing power anyway. Three, if you are now employed and collect salary, you might become jobless any time soon. As much as possible, keep what you have now.
For employers of labour, facing imminent revenue shortfall, the advice is to cut early. Consider substituting technology for people. Don’t be sentimental. The toughest decision I ever made was to recommend that a girl friend be sacked along with others for the survival of the company. Try trade by barter. Give what you have in exchange for what you need. Banks, GSM networks, airlines, media, hotels, oil companies etc can engage in limited and non-formal exchange processes – when formal market mechanisms break down to keep going. Substitute lower grade materials for superior quality inputs.
Irrespective of whether you are making decisions for yourself, family or company, make sure you reduce waste. Eat all the chicken, pork and fish. Try finishing the meat and bones too. Fill your stomach. Food first; health next.