From Uche Usim, Abuja
Dr Abraham Nwankwo, the Director General/Chief Executive Officer of the Debt Management Office of Nigeria (DMO) has been in the news lately. He is read and heard almost on a daily basis for endorsing a contentious $29.96 billion loan Nigeria seeks from a catalogue of offshore lenders.
While some analysts pick holes with the proposed loan, especially coming at a time the country was in recession and heavily burdened by an existing N16 trillion debt stock it is battling to service, the DMO boss says the facility remains a sound vehicle needed to transport Nigeria out of the current economic imbroglio.
He described those calling the loan a debt trap as being illogical, even as he insists Nigerians need not lose sleep over the matter as the 2016 debt sustainability analysis carried out by his office shows that various programmes of the incumbent administration were capable of servicing all the debts.
In this interview, he speaks on the loan and the nation’s economy in general.
Nigeria’s debt profile
Our total debt stock as the end of June 2016 is N16 trillion, which is 12.24% of our GDP and so we will continue to emphasise that relative to our GDP, we are very comfortable. But we also accept that we have a challenge with our domestic debt service because of the high cost of funds domestically, which is one of the reasons there is need to borrow comfortably if we must borrow. It is necessary for us to see how much we can conveniently borrow from external source since that will help reduce the domestic cost of funds because when the demand from the domestic market by government drops, it means whatever resources are available is there for the private sector and because the demand pressure is lower, the cost will be lower too. That’s one of the strategies of government.
That’s one of the reasons borrowing from the external source is encouraged.
People always say if you borrow from external sources, how will you service external debt? In our view, you go borrowing to turnaround the economy, to have efficient rail and road transportation, efficient and reliable power supply. That’s why we’re borrowing. We are not borrowing for borrowing sake. You want to transform the economy by covering the infrastructure deficit, if you do that, the cost of production in the economy will fall, so beyond inflation and all those issues like infrastructure deficiency, we will deal with them. Moreover, if you have sufficient infrastructure, it helps to diversify both export and domestic supplies. We import most of our goods some of which we produce locally but the imported ones are cheaper but if the cost of production falls because of reliable and efficient infrastructure, the cost of production falls so the final products from Nigerian factories will be low. So Nigerians can now buy the lower one so that boosts the economy.
On the other hand, the fact that you’re producing competitively at cheap cost here means you can even export even beyond West Africa because you can now compete just as China is producing at cheap prices and bringing them here.
We can also produce at cheap price and sell to other countries so when you start exporting to other countries, of course, you will start earning more foreign exchange. So, if you’re exporting five or seven products, in addition, you are exporting, maybe, three, four or five solid minerals, which belong essentially to government.
Is $29.96bn loan a debt trap?
The first thing to note is that this borrowing is normal. Normal in the sense that over the past 20 years, there is no year we have not borrowed. I am not aware of any year in the past 20 years that Nigeria has not borrowed. So, interpreting the proposal submitted to the National Assembly by Mr. President for a three-year borrowing programme to be an indirect way of trapping the country does not seem to be logical because Nigeria has always borrowed every year.
So, there is nothing new about this. Let me also emphasise that since we exited from the Paris and London club debt in 2005-2006, we have always borrowed almost from all these sources we want to borrow from now. It was the Chinese loan that financed NIGCOMSAT more than seven years ago. The medium term external borrowing programme is also not new. I am sure that by next year it would be represented because 2016 would have been exhausted completely and a new rolling plan will come in.
That’s why it is called a rolling programme. It is part and parcel of the total fiscal framework because fiscal framework includes the medium term expenditure framework, which explains how you will fund the expenditure over the medium term and one of the items for funding expenditure over the medium term would be the financing item, which is the borrowing and that has always been there. This is to confirm to you that there is nothing specially new about this borrowing proposal, which Mr. President has placed before the National Assembly. It’s a normal procedure for funding the development of the country.
Benefits of earlier loans like NIGCOMSAT
NIGCOMSAT is too abstract for the man on the street, so I won’t want to use that because it is about satellite imaging and ordinary Nigerians cannot appreciate it. I would rather talk about something more straight forward.
You are aware, for example, that the Nigerian airports are being remodelled; new terminals are being built in almost all parts of the country. These are being done with borrowed money. Over the past four or five years, the Abuja Airport road was expanded from four lanes to ten lanes and same with Abuja-Kubwa-Kaduna road. These two projects were actually funded with money borrowed domestically. You are aware that the Nigerian rail lines are being resuscitated with new locomotives purchased, and Lagos, Ibadan, Kano rail line has been fully resuscitated. These were done with external borrowing.
These are some of the examples and on routine basis and on a permanent basis, you are aware of the various agricultural projects some mainly funded by the World Bank and some of them in some areas are called FADAMA. Some of them are still existing in all parts of the country.
All those projects are funded with borrowed money. You are aware of the Polio Eradication Programmes (PEP). Those are funded with borrowed money from IDA in particular, that is the concessional window of the World Bank. You are aware of the various water supplies that are also funded with money borrowed from the multilateral sources. So, these are some of the major popular projects that we have said but in general all the moneys borrowed from external sources are projects tied. Let’s use a good example of the World Bank. You are aware that the World Bank cannot give you a loan without supervising it themselves, that is the system. They must supervise it themselves and they must have people working with the Nigerian team to monitor the project from the beginning to the end and they don’t just disburse the money and walk away, they disburse the money as the work progresses. So, even when Nigeria seeks for a loan and it is approved, the disbursement of the loan is done according to the schedule of the work itself.
Misappropriation of former loans
Very good observation. The two things to say about that is that, first, there is no doubt that Nigerians are right in asking questions and getting concerned about value for money and about how we get proceeds from what we use. The concerns are valid, correct and appropriate. Nobody should doubt that and the important thing to say is that in every system where there is a failure, there are people responsible for tracking why there is failure and for doing the monitoring for effective and appropriate sanctions if there are needs for sanctions. So, that is what I can say about that. I am not going to say everything has been perfect, if everything has been perfect, Nigerians wouldn’t be concerned. Nigerians are reacting based on the experience of many years and they are right to be concerned and also right to ask questions and indeed Nigerians and including the journalists should feel free to confront relevant agencies and MDAs responsible for such projects because every project has an MDA that is responsible for it.
However, it is also appropriate to recognise that we have an opportunity that is very different. We have a government, a president whose administration is founded on transparency, accountability and anti-corruption, which means we have a greater chance and we should have more confidence that resources, revenues as well as loan proceeds will be more efficiently and accountably used. It will not be siphoned through corruption. Having said that, we will make sure that all the various apparatus available for monitoring, for making sure that resources are well used should be put into effect. We cannot afford this time around to experience wastages. So, the government agrees with the Nigerian people that we cannot afford to continue wasting resources.
Worry over debt servicing capability
Why not? The government is worried about debt servicing. But what you should be asking is if we are managing the debt. The essence of managing our debt is to know if we service the debt and that is why we do debt sustainability analysis, which we have done for 2016 and for every year. It is because we are concerned about our debt that is why we do it and the result made available to the public. Everything the government is doing is within the scope and recommendations of that analysis.
Certainly, every government and debt manager is interested in knowing whether what it borrows, it is in a position to service it. From analysis, programmes of government, we know we can service our debt. Ever since we exited from Paris and London clubs debts, we have never defaulted in servicing our debt whether external or domestic. We have managed our debts prudently, that doesn’t mean we are not in a position to improve. There is no country that has any system that is not improving. So, we are not saying that we have arrived at the peak, we are still improving. But, you should also give us the credit that Nigeria’s public debt service management is among the most respected in the world in terms of what they do and how they do it. I assure you that the proposal, which Mr. president has put before the National Assembly for external borrowing has taken into account Nigeria’s ability to service the debt; taking into account that those external borrowings are at very affordable interest rates. Most of them are below three per cent per annum and all of them range between 15 and 30 years in tenure and their moratorium range between five and 10 years. So, those loans are at relatively concessional terms. Talking of debt service, one of the reasons they tilt to external borrowing is because compared to domestic borrowing, they are much cheaper. They are at least seven per cent cheaper than domestic borrowing, which means when you look at their tenure and the interest rate, it means that their impact on debt service will be minimal per annum so they are even more serviceable.
Loaning to heavily indebted states
That is not the way to look at it. You are not giving them a loan. We’re talking of an economy you want to develop. The economy needs infrastructure, basic education, rural water supply, etc. If a state in the Federal Republic of Nigeria is having a fiscal challenge and they also need water supply for their people, you wouldn’t encourage them to have water for their people? Then that is not development. So, the fact that you have a problem doesn’t mean you have to run away from your responsibilities.
Nigeria is one economy and, as you know, in addition to existing procedures, the minister of finance has taken the initiative to see what can be done for states’ fiscal position to get better in terms of the fiscal sustainability plan.
Advice to reform
We don’t need them to tell us before we carry out our reforms. Our reforms are ongoing and we are maintaining the momentum of fiscal reforms like the fiscal sustainability plan, the establishment of the efficiency unit to improve efficiency and all that. There’s also the presidential initiative on continuous audit. These are reforms. So, we know we must have reforms and the reforms are ongoing. So, whether our friends ask us how far we are doing or not, we know we need reforms and we have been doing reforms and will continue doing reforms because we know we need them. We are also doing structural reforms, this is to assure you that the Nigerian government and people know that we need reforms and we are going ahead to carry out these reforms for our benefit.
Federal character in resource allocation
What we should ask ourselves is what is the procedure? Apart from the nationwide projects, the state by state original projects, what determines it? The procedure is that every state knows the normal procedure because no state in Nigeria is a new state. States have always borrowed externally, so they know the process. For example, if you want to borrow from the World Bank for agriculture, you would approach the World Bank’s local office in Nigeria to know what kinds of loans they have for agriculture or for water supply or for health and based in those preliminary discussions, the state will relate with the international economic relations department of the ministry of finance. And based on the guidelines of both the World Bank as lender and the International Economic Relations Department, which is the Federal Government agency they begin to articulate and aggregate these things. It is demand-driven. All I can say about that if there are states or regions that believe that they have been excluded what we should do is find out from them whether they submitted proposals to both the creditors as well as to the International Economic Relations Department of the ministry of finance and those proposals were not considered.