EXPERTS have advised economy managers under the current administration to consider the use of Federal Government guarantees to raise the funds required to solve critical problems confronting the Nigerian economy.
The experts, who spoke in separate interviews with our correspondent, said the use of guarantees was far better than continuous borrowing, considering the unavoidable negative fallout of excessive borrowing, including huge debt servicing.
According to them, Nigeria can raise up to N30trillion through the private sector, based on government guarantees.
A Government guarantee allows an agency or institution to raise funds from the private sector in a way that gives the provider of funds the comfort that the Government will pay back in the event of default.
The rate of default is usually very minimal, depending on underwriting guidelines.
A former top government official, who had played a leading role in the finance sector, told our correspondent that using the idea behind the setting up of the Asset Management Corporation of Nigeria would do the nation a lot of good.
He said some past Nigerian finance ministers had been advised, with relevant papers, on exploring this angle of solving the nation’s economic problems, but that they had instead preferred the debt option at the detriment of the economy.
The finance expert, who spoke in confidence, said, “In the next five years, with the use of guarantees, we can raise N30trillion for the Nigerian economy. When it was created, the Federal Government never gave AMCON a penny. If they were to give AMCON N5trillion to buy toxic debts then, they would not have been able to afford it.
“So, they used guarantees, and based on those guarantees, AMCON raised private sector funds. And we can apply it elsewhere. From my calculations, if we use guarantees, we can raise N30trillion in the next five years for Nigeria. That is the way we can go, and it is not on our balance sheet, so we are not paying the interest.”
Another renowned economist, who spoke on the condition of anonymity, owing to the sensitivity of the matter, said he was aware that a proposal was sent to a former Minister of Finance on how to raise enough funds to manage Nigeria’s economic problems, without necessarily resorting to borrowing.
He, however, claimed that the former minister did not yield to the advice.
“We could have saved Nigeria over N2trillion if we had explored the guarantees angle instead of insisting on borrowing,” he said.
He noted, “I am aware that a proposal was earlier sent on this to the Federal Government, for free, on how to go about that. Look, Nigeria needs $30billion a year in foreign investment. So, the question is: how do you get it? How do you position the country in such a way that people are willing to invest?
“You must have a coherent masterplan that takes everything into account. You can’t just devalue because devaluation by itself doesn’t help you. You can’t reduce interest rate because that by itself doesn’t help you. You must have a plan that ties everything together so that the burden on the economy will be minimal.”
The experts, however, acknowledged the efforts of the current Minister of Finance, Zainab Ahmed, saying that she should be supported.
“She is trying her best to put things on the right track, and Nigerians should give her all the support she needs,” the ex-government official said.
Since the commencement of operations of AMCON in 2010, about N1trillion was recovered from debtors of banks whose loans were taken over by the corporation, as of January 2019.
The finance minister had said this while inaugurating the board of AMCON.
AMCON was set up by the Federal Government through the Central Bank of Nigeria to bail out banks, through the purchase of non-performing loans and to recover loans from debtors.
The finance minister said that out of the recovered amount, cash accounted for 60 per cent, while non-cash assets, such as properties and equity securities, accounted for the balance of 40 per cent.
She said over the same period, AMCON’s repayment of its indebtedness to the apex bank was over N1trillion, while its total debt obligation to the CBN stood in excess of N5trillion as of the time she spoke.
She explained that, going by the current economic realities, the Federal Government could not afford to write-off the debts in the short term.
She said, “At inception, the corporation acquired over 12,000 non-performing loans, worth approximately N3.7trillion, from 22 commercial banks; injected N22trillion as financial accommodation to 10 banks.
“The direct impact of that action is seen in the protection of about N3.66trillion of depositors’ funds and approximately 14,000 jobs were saved. AMCON has been able to recover over N1trillion since inception to the 2018 year end.”
Experts have, therefore, advised the President Muhammadu Buhari-led government to explore the AMCON finance strategy in reviving the ailing Nigerian economy.