Buhari loan
President Muhammadu Buhari

By Tunde Oso

President Muhammadu Buhari on Thursday sent a request to the National Assembly for a fresh $5.513 billion external loan, which has elicited widespread comments from economists and financial experts.

The loan, according to President Buhari, would be used to finance the proposed 2020 revised budget, some priority projects and to support state governments.

However, some economists, who spoke to Sunday Vanguard have wondered why this request was coming after the National Assembly, in April this year approved N850 billion domestic loan request of the President to finance projects in the 2020 budget and having earlier in the year also approved $22.79 billion external loan request for Buhari, which was also meant to fund the total 2020 budget size of N10.5 trillion.

Prof. Ken Ife, Chief Economic Strategist in ECOWAS Commission, said external borrowing by our Fiscal Responsibility Act 2007 is expected to be for capital projects only and even within the array of capital projects, the external borrowing could be a burden if it fails debt sustainability tests, and recoverability is not foreseen. “We need massive investment in most infrastructures for our economy to continue to attract private sector investment and for our economy to grow and be more resilient.”

Prof. Ife, who is also Co-Chair of EU – Africa Business Task Force maintained that we need massive investment in restructuring and rebalancing our economy in favour of strengthening our productive capacities and enhancing priority value chains in our import substitution, backward integration and achieving self-sufficiency and achieving self-sufficiency and building sustainable export capacity go in hand and support each other and that is why Asian Tigers’ export-led economies experienced rapid growth of their economy and employment as well as significant reduction in poverty levels.

“There is a general preference for soft, low interest, concessionary loans from multi-lateral development banks as they, too, have vested interest in the viability, sustainability and capacity to repay the loan and as such have shared project management, monitoring and evaluation interest. They also offer grants, capacity building support and technical assistance. This cannot be said for bilateral lenders like China,” he said.

Dr. Muda Yusuf, Director-General of Lagos Chamber of Commerce and Industry, opined that we need to worry about debt sustainability. Current debt service to revenue ratio is very high, close to 60% or even more. “There is need for clarity as to whether the borrowing proposal is part of the borrowing plan submitted ahead of the presentation of the 2020 budget and the corresponding Medium Term Expenditure Framework (MTEF). If that is the case, then there would be less cause to worry.  But if this is an additional loan, then there is need for caution.”

The LCCI boss explained that a fiscal crisis is both a revenue and expenditure issue. “Current expenditure profile requires drastic reforms.  Cost of governance and fiscal leakages are challenges that the government is still grappling with.  We need to clean up the space to justify fresh borrowings.

READ ALSO: Fresh $5.513bn loan: SERAP writes Buhari, seeks spending details, audit of loans 

Besides, we need to reckon with the capacity to service current stock of debt. We have reached a point where debt service provision has outpaced capital budget. Government revenue can barely cover the recurrent expenditure.  Such scenarios do not augur well for fiscal sustainability of the country.”

Mr. Teslim Shitta-Bey, Managing Editor, Proshare, said Nigeria’s total debt has risen by 21.4% between 2015 and 2019 on a compound annual growth rate (CAGR), rising from N12.6trn in 2015 to N27.4trn in 2019, this has certainly raised concerns amongst economists. The current situation suggests that part of the new proposed borrowings will go to service past debts with repayments falling due, while aspects of the new debts would go to meet both capital and recurrent expenditure.

Shitta Bey, however, said making comments on the country’s debt position could be tricky without seeing the overall debt architecture and revenue assumptions for 2020 and 2021. “Debts in themselves are neutral what really is critical is the overall debt application and debt management plan. There is not much clarity in these two areas at the moment.”

Chairman, Senate Committee on Media and Public Affairs, Dr. Ajibola Basiru, according to news reports, allayed fears of Nigerians, saying the loan request was in order because it was targeted at specific projects.  He said the various external and domestic loans being taken by the Buhari regime would not be a burden to the nation, contrary to fears expressed by some economists.

The Senate spokesperson also justified the huge sums proposed by the regime in the 2020 budget to service loans. “Debt servicing is a cost of the funds you have raised. For the economists, it is a question of whether the cost of funds is justified by the value you get for what you are raising. The truth is that, globally today, debt is a major source of public finance funding. Debt is not a burden.

“It only becomes a burden when you take funds and irresponsibly spend the money on what will not bring development to the country. If you borrow and do infrastructural development and enlarge the economy and increase the earning power, you are in order,” he said.

“The infrastructure that we will spend this $5 billion to execute, if we want to wait until we raise the money, it could have increased to $15 billion. The interest that we get today will be lower than what we will get later.”



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