Borrowing inevitable, FG tells lawmakers
No new request – DMO Tread with caution – Experts The federal government said yesterday that more borrowing is inevitable as it has to meet the infrastructural needs of Nigerians which will be difficult through monies accruing from oil sales and taxes, only. Ministers of Finance Mrs Zainab Ahmed, Minister of Works and Housing, […]
- No new request – DMO
- Tread with caution – Experts
The federal government said yesterday that more borrowing is inevitable as it has to meet the infrastructural needs of Nigerians which will be difficult through monies accruing from oil sales and taxes, only.
Ministers of Finance Mrs Zainab Ahmed, Minister of Works and Housing, Babatunde Fashola, Minister of State for Transportation, Gbemisola Saraki and Director-General, Debt Management Office, Patience Oniha, stated this yesterday when they appeared before the House of Representatives Committee on Aids, Loans and Debt Management.
They were at the National Assembly to defend President Muhammadu Buhari’s recent loan request of $22.718 billion presented to the Senate.
This is coming amid warning by financial experts and civil society on the need for the federal government to thread with caution, and members of the National Assembly to interrogate the desirability or otherwise of such moves.
The finance minister said there is an urgent need to borrow to fund the 2020 budget to improve infrastructure and create jobs.
“We need to invest in roads, rails, and to be able to grow at a rate better than we are growing now,” she told members of the House of Representatives.
“They (loans) are strictly for infrastructure development, so that we can address the deficit that we have. We know we must comply with some criteria,” she said.
Mrs Ahmed allayed fears over borrowing, saying, “Nigeria does not have a debt sustainability problem but revenue challenge. Every kobo borrowed will be judiciously used.”
In his submission, Fashola said government could not ignore the infrastructural needs of the country which he described as “the catalyst for the overall development of the country.”
“It is right to have this hearing because we cannot ignore the concerns of the members of the public, on the debt profile of the country. As we cannot ignore the concerns about debts, so we cannot ignore the concerns and demands for the provision of life sustaining infrastructure.
“Everybody wants a road, everybody wants a rail project, and everybody wants a port and efficient airports. They want to ensure that our ports are efficient so that businesses can function more effectively, so that clearing of goods can happen more quickly and cheaply.
“And in the midst of these physical challenges that she (the finance minister) has identified, the revenues are not just enough to meet the challenges,” Fashola said.
Justifying the loans
Fashola said there was no money to execute a total of 524 on-going road projects across the country.
He said: “524 roads projects are currently being executed. N73 billion was released this year; we have contractors willing to do the work but we cannot pay them.
“We have had deficit budgets for a long time and so, we have to borrow. Over four years, we have never received full funding for any budget. There is deficit and we cannot finance it. We must find a way to finance these assets. We will be spending money today to secure tomorrow’s assets,” he said.
Explaining further on the status of the East-West Road, the minister said although it was not under his ministry, a substantial part of the road had been completed.
Speaking on the Benin-Auchi-Okene Road, Fashola said briefings from the ministry of finance revealed that there were both external and internal borrowings for the funding of the road project.
“There are also internal borrowings. The road is being funded under SUKUK which is local borrowing. The SUKUK is not enough to fund all the roads. We get N100 billion…We share it across all the six zones,” he said. The minister dismissed insinuations that Nigerian roads were not built to international standards.
“We are not doing things as we want but according to global standards,” Fashola said.
Sen. Saraki also concurred with the other ministers on the need to borrow to finance projects like the Kano-Lagos and Niger Delta coastal rail projects.
No new debt – DMO
However, the Debt Management Office (DMO) said yesterday that there was no fresh loan approval request before the National Assembly but a request for the 2016 – 2018 Medium Term External Borrowing Plan for the sum of USD22.718 billion.
The DMO said contrary to claims that President Buhari made a fresh loan request to the National Assembly, “this is not a new request, rather it represents those borrowings which were submitted to the 8th Assembly but were yet to be approved before the expiration of the assembly.”
DMO said the Public Debt Stock was actually a cumulative figure of borrowings by successive governments over many years.
“It is therefore not appropriate to attribute the Public Debt Stock to any one administration. The requests in the plan are proposed borrowings from multilateral and bilateral lenders.
“The proposed loans are concessional, semi-concessional, long-tenored and are for the purpose of financing infrastructure and other developmental social projects all of which have multiplier effects in terms of job creation, business opportunities and overall increase in Nigeria’s Gross Domestic Product,” the statement said.
Red alarm
In his column titled ‘Beware, the spirit of Unoka’ published in yesterday’s edition of Vanguard newspaper, Obadiah Mailafia, a development economist and one-time Deputy Governor of the Central Bank of Nigeria asked the National Assembly to critically examine the motive behind obtaining more loans.
“I would insist that the Senate not give a blanket approval for US$30 billion to be spent just like that,” he said.
“All such borrowings must, in my considered opinion, be directly linked to specific, monitorable projects. Also, Nigerians should demand to know what all the other borrowings have been used for.
“In a matter of five years, our national debt has ballooned from US$10 billion to a whopping US$84.4 billion. I would be very wary of taking on more debt without the iron cast guardrails of financial discipline.
“The current administration seems to have an uncontrolled appetite for foreign loans. But it is not particularly good at managing projects. Without fiscal discipline, it is dangerous to borrow! There will always be a financing gap for the foreseeable years,” he said.
Mailafia who was the 2019 presidential candidate of African Democratic Congress (ADC), added that, “Whilst we do not yet have a debt crisis, the IMF and the World Bank have warned that we are already reaching a dangerous threshold, given that we spend 50 per cent of our revenues just to service our debt while only a meagre 23 per cent goes into capital spending.
“Incurring another US$30 billion will take our total debt outlay to about US$114 billion, which, under current path-dependencies, will mean we will be spending 70 per cent of our revenues on debt-servicing.”
On how Nigeria managed to exit from its debt trap during Obasanjo’s presidency, Mailafia said, “Some of us were involved in the Paris Club debt negotiations in 2005/2006. At that time our external debt was about US$36 billion.
“We were spending US$5 billion annually on servicing interest alone. In the deal that we negotiated with the Paris Club, we paid back US$20 billion in order for the rest to be written off. I was acting for the Central Bank Governor at the time and I recall signing the cheque for the first tranche of US$7.5 billion.
“I caught fever immediately and had to have bed rest. I could not fathom coughing out such a staggering amount to pay off some greedy shylocks in New York, London, Frankfurt, Paris and Tokyo. I felt the pain to the marrow of my bones.”
Huge debt profile
Daily Trust reports that Nigeria’s debt stock increased by 3.11 per cent, from $81.27 billion recorded in the first quarter of 2019 to $83.88 billion (N25.70 trillion) at the end of June 2019.
Analysis of the debt figures showed that this is 12.72 per cent increase year-on-year from the $73.21 billion at the end of June 2018.
The DMO released the latest debt stats on Tuesday, October 15. The public debt stock includes both external and domestic debt of the federal, states and the Federal Capital Territory (FCT) as at the end of June 2019.
Further analysis of the data showed that the federal government’s external borrowing climbed 32.38 per cent to $27.16 billion, while states, including FCT, grew by 5.10 per cent to $4.27 billion.
On the domestic debt side, the federal government’s debt increased by 52.19 per cent to $43.78 billion, while the states and the FCT rose by 15.43 per cent to $12.94 billion as of June 2019.
Overall, total external debt stood at $27.16 billion, while total domestic debt stood at $56.72 billion, according to DMO data.
During the administration of former President Olusegun Obasanjo, Nigeria and the Paris Club agreed on an $18bn debt relief package.
Before Nigeria got the relief in June 2005, the country’s total debt in December 2004 stood at $35.994 (N4.82trillion).
Reps direct MDAs to return unspent budgeted funds
The House of Representatives yesterday directed all ministries, departments and agencies to remit unspent budgetary funds in the last 10 years by December 31, 2019.
This followed a motion jointly sponsored by Speaker Femi Gbajabiamila, Abubakar Hassan Fulata, Igariwe Idume, Wole Oke, Chinedu Oga and Isiaka Ibrahim on the need for refund of unspent budget fund.
The House said the directive was to ensure budget discipline and accountability, expressing concern that unspent funds were misapplied to other expenditure items contrary to extant public financial management laws and regulations.
The lawmakers noted that releases for constituency and other projects funds were based on the total sums provided in the annual budget and that most constituency projects were awarded at amounts less than the budget provisions by the MDAs.
“Aware that unspent funds of MDAs are returned or rather automatically mopped up by the Central Bank of Nigeria at the end of each year.
“Further aware that, excess funds accruing from the undervalued awards of constituency projects are not returned to the treasury,” the lawmakers said. Leading the debate, Fulata (APC, Jigawa) said the motion was apt in order to eliminate the age-long practice of holding onto unspent funds by MDAs “year-in-year-out which is depriving Nigerians of quality and prompt execution of projects.”