Against the backdrop of some foreign debts that dealt excruciating blows on economic growth and the image of Nigeria in the 1980s and 1990s, the latest news that Nigeria is seeking a $5.5 billion foreign loan is discomfiting, to be apt.
President Muhammadu Buhari had asked the National Assembly to approve two external loans worth $5.5 billion. But, the terms and conditions for such facilities were not made known. In a letter to the Senate, President Buhari said the first loan of $2.5 billion would be used to finance the deficit and capital projects in the 2017 budget. The second loan of $3.0 billion would be used to refinance maturing domestic debt obligations, through the issuance of Eurobonds or a loan syndication, so as to reduce debt service levels and lengthen the tenor profile of the debt stock. In other words, the Federal Government is seeking to substitute maturing domestic debt with less expensive long-term external debt.
The current administration had in June, this year, issued a $300 million Diaspora Bond in the International Capital Market. The balance of the 2017 external borrowing in the sum of $3.2 billion is planned to be partially sourced from issuance in the ICM, of $2.5 billion through Eurobonds or a combination of Eurobonds and Diaspora Bonds, while $700 million is proposed to be raised from multilateral sources.
Among the projects to be financed with the $2.5 billion are the Mambilla Hydropower Project, construction of a second runway at the Nnamdi Azikiwe International Airport, counterpart funding for rail projects, and the construction of the Bode-Bonny Road, with a bridge across the Opobo Channel.
There is no doubt that the option of taking a foreign dollar loan to offset a local naira debt is ill-advised. The issue of a foreign loan for Nigeria is also very distasteful to many Nigerians at this point in time, especially when the country is just getting out of the worst recession in over two decades. No doubt, government officials from the Federal Ministries of Finance, and Budget and Planning, respectively, have been hard at work, trying to explain to the National Assembly and, indeed, all Nigerians, why the Federal Government should commit the country to a fresh $5.5 billion debt.
There is nothing awful in taking a loan. But, with a history of very bad debts, and having been forgiven of some after many years of sluggish repayment, taking an unpopular decision of paying naira debt with dollar loan is unthinkable. There may be nothing wrong in borrowing to finance capital projects that will engender growth in the economy. Unfortunately, however, the larger part of the $5.5 billion loan is to refinance maturing domestic debts, which were contracted in naira. In other words, the government wants to use ‘dollarised loan’ to refinance a naira loan because of the longer tenor of the
dollarised loan.
There is also the issue of Nigeria’s rising foreign debt, which stood at $3.6 billion in the first quarter of 2009, then rose to $9.5 billion in July 2014, before moving to $9.7 billion in July 2015. It, however, ballooned to $13.8 billion at the end of 2016; and by September 2017, had risen to $15.047 billion. As things are, the country’s rising debt stock will, one day, grow to become another major problem for Nigeria.
The International Monetary Fund recently warned Nigeria and other low-income countries against the danger of reliance on foreign borrowings. IMF’s Financial Counsellor and Director, Monetary and Capital Markets Department, Tobias Andrian, warned that greater reliance on foreign borrowing could make the economies of Nigeria and other low-income countries vulnerable.
But far more worrisome is the fact that the country does not have a good history of foreign debt management. We believe that a better option in the present circumstances is to use the various monies (local and foreign currencies) seized from the treasury looters (if they have been truly recovered) to finance the infrastructure projects enumerated in the budget. We may also unlock some funds from the $3.3billion in the country’s foreign
reserves.
There may be nothing wrong in borrowing to finance capital projects that will engender growth in the economy. Unfortunately, however, the larger part of the $5.5 billion loan is to refinance maturing domestic debts, which were contracted in naira
Many Nigerians have understandably risen against the new loan request, having heard from the Debt Management Office that under the Buhari administration, Nigeria had borrowed N7.51 trillion with no clear indication that the loans were judiciously spent. In tandem, we are particularly worried at the gale of borrowing without recourse to the far-reaching effect of debt-servicing burden, which will definitely strain the economy and limit its frontiers.
In the same vein, a red flag dangles on Nigeria’s high interest payments in servicing loans, especially as that was the factor that overshot the nation’s Paris Club debt from less than $7 billion to $30 billion. The same happened to South Africa. This sort of borrowing shot its debt profile from $22 billion after the Apartheid era to $136.6 billion, a few years later.
Instead of going cap in hands to the West, Nigeria should pay more attention to boosting its privatisation plan in order to attract huge Foreign Direct
Investment.
Another critical dimension to the whopping debt awaiting Nigeria is that no explicit repayment formula had been laid out for the next three to five years, for instance. From experience, loan repayments in Nigeria had never been effectively carried out through other means than oil accruals. This is no doubt a dangerous projection, bearing in mind the huge crash of the oil price at the international market recently.
Without doubt, Nigeria, outside oil exportation, is still largely a consumer nation; and for a consumer to be borrowing without a definite means of repayment, under simple arithmetic, is no more than penury. Let the Buhari administration be properly
guided.
