By Omodele Adigun, Bimbola Oyesola, Isaac Anumihe, and Adewale Sayanolu
At the last count, the nation’s debt profile was put at $57.39 billion by the Debt Management Office (DMO). That was aside the recently oversubscribed $1billion Eurobond.
According to the Director-General of DMO, Dr. Abraham Nwankwo, this total debt stock comprised both the external and domestic debts of the Federal Government, those of the 36 states of the federation and the Federal Capital Territory, FCT, as December 31, 2016.
As if that was not enough, the Acting President, Yemi Osinbajo, also recently requested the National Assembly’s approval for the issuance of $500 million Eurobond in the international capital market for the funding of 2016 budget deficit.
According to him, “following the high oversubscription of $1billion Eurobond issuance, we wish to take advantage of favourable market conditions to issue (another) Eurobond debt instrument of $500 million.
“This is in order to meet the governments approved capital expenditure funding plan,’’he said.
His letter to the legislators stated that the 2016 Appropriation Act provided for a deficit of over N2. 2 trillion and new borrowings of more than N1.819 trillion respectively.
It also said that the Act also provided for domestic borrowing of N1.183 trillion and external borrowing of N635. 877 billion.
“While the approved domestic borrowing had been fully incurred, the N635.877billion external borrowing has not been fully accessed.The external borrowing incurred to date consists of $600 million from the African Development Bank and $!billion Eurobond from the international capital market only.Thus, based on the 2016 appropriation and applying the average exchange rate, there is headroom to access further international funds.”
Taking a swipe at the Federal Government’s borrowing habit, a leading International business journal, the London Economist, last week said the country has continued to take out expensive domestic and foreign loans. It noted that while debt remains relatively low as a proportion of GDP, at around 15 per cent, servicing it is eating up a third of government revenues. It expressed surprise that after its $1 billion Eurobond issue was almost eight times oversubscribed last month, it is planning to issue another $500 million this year, even as officials of government have also said that they want to borrow at least $1 billion from the World Bank.
As if to disagree with the magazine, Mr Foluso Fasooto, a former President of the Association of Professional Bodies of Nigeria(APBN) cautioned that attention should rather be focused more on what government used the proceeds of the debt on, rather than the quantum of the debt.He, however, raised the alarm that if government had spent the proceeds of the debt on current items, the nation is doomed
“Debt is not the issue, but the use to which the government has put its proceeds. That is the issue. Government wants to make us believe that they are incurring this debt for financing infrastructure. I think government should continue to tell Nigerians that the proceeds of these debts are actually targeted at improving infrastructure; that it is being spent on capital items. If that is the case, we are sure that, in the very short term, we would start getting the dividends of what they are spending this debt upon. If the infrastructural facilities are okay, business will boom. And then, there will be improvement in the economy, and people will be able to pay tax and government revenue will then increase from which to pay the debt being incurred. But if the debt is being incurred on current items, it means that Nigeria is doomed. So the attention should be focused more on what has the government used the proceeds of the debt on, rather than the quantum of the debt.”
Toeing the same line, the Director, Centre for Petroleum Energy Economics and Law, Prof. Adeola Adenikinju, said there was nothing wrong in borrowing, but the source of the borrowing and what it is used for remain the critical issues.
He said the source of borrowing has immediate and long term implications, adding that borrowings equally come with the burden of interest rates.
On the other hand, he said domestic borrowings have its attendant effect on the economy because it is a way of crowding out the private sector, which ordinarily should have had access to such funds to decompress the economy and use it for activities that would eventually grow the economy.
Also, he said if the funds are from bonds, banks would prefer that as against loans because it is a riskless venture.
Adenikinju noted that the areas of the economy such funds are spent on, saying the state of infrastructure across the country brings to question, the rationale behind such loans, adding that roads, hospitals, power sector are all in a bad state.
‘‘Could the borrowings be for recurrent expenditure such as paying salaries or for human and fiscal capital development? Those are critical questions. But if you look around, it is difficult to see what the monies are being used for in a sustainable way. The state of infrastructure in almost all the sector is down.’’ he said.
He explained further that if the borrowings are from the international capital market, such will be indexed against international exchange rates, taking the country back the era of 1980s while if it is from the World Bank or IMF, such will prevent the country from coming up with independent economic policies leading to a compromise.
‘‘Yes, people may say we have a right to borrow from these bodies becomes we pay subscriptions to them. I don’t think we should celebrate debt but we should look for ways to diversify and resuscitate the economy by empowering the private sector.
Whatever debt we incur should be made known to Nigerians and its implication thoroughly debated on what the money is meant for,ditto for structure to be deployed in repaying such,’’ he advised
But the Nigeria Employers Consultative Association (NECA) condemned the ever increasing high debt profile of the country from 2012 till date.
Its President, Mr. Larry Ettah, lamented that Nigeria’s domestic and external debts have risen significantly since 2014, and particularly in 2015 and 2016.
“Our domestic borrowing has risen from N577billion in 2013 to N1.18trillion by 2016 while total borrowing (external and domestic) has grown from just N614billion in 2014 to N1.8 trillion in 2016 and a projected level of N2.3trillion under the 2017 budget! “
Ettah said it was more worrisome that debt servicing obligation now represents about 35 per cent of total budgeted revenue in both 2016 and 2017, adding that it simply suggests that Nigerian government borrowing is probably unsustainable. He added, “We also note that while the successful and multiple oversubscribed $1billion Eurobond represents a vote of confidence in Nigeria’s economy, at over 7 per cent coupon, it was highly priced.
“In our opinion, the sustainable funding strategy for the Nigerian economy should focus on private investment/FDI rather than concentrating on unsustainable borrowings.”
While the Organised Private Sector (OPS) believes that the country’s debt is still within the international benchmark, the Labour movement noted that it is not sustainable but a sheer attempt to return Nigeria to the old path of indebtedness.
The President of the Manufacturers Association of Nigeria (MAN), Frank Jacobs noted that the benchmark allowed by the World Bank and the International Monetary Fund (IMF) is 40 percent.
According to him, Nigeria’s debt profile now is just about 12 percent, stating that it’s still within a comfortable global range.
He explained that the country under the present economic circumstance has no other option left for it to revive the ailing economy than to go borrowing.
He said, “With the present situation we found ourselves the only option is to spend out of recession, we have to borrow and use the money judiciously to re-invergorate the economy for physical infrastructure and industrialisation.”
He however said that borrowing might amount to mortgaging the future generation, if the fund is not put to proper usage.
“But if it’s use to develop the country, it will take the economy out of the wood to higher level and the future generation will be better for it, as it will secure their future.”, he said.
The MAN President maintained that it is better for Nigeria to borrow and spend herself out of recession than for the future generation to live in penury.
The Organised Labour also shared the same thought on the fact that every fund available should be directed towards developing the economy, but said that Nigeria could actually look inward rather than plunging the country into another round of indebtedness that is not sustainable.
The Vice President IndustriALL, global labour body and the General Secretary of the National Union of Textile Garments and Tailoring Workers of Nigeria (NUTGTWN), Issa Aremu, said borrowing actually contradicts the country’s constitution.
“I think one of the value that the constitution emphasised is self reliant. And you cannot have self reliant when you rely on debt and for Nigeria it’s a road that we have passed through”, he said.
He recalled that Nigeria was spending almost about $3 billion out of the annual budget of less than 5 or 6 trillion naira when President Olusegun Obasanjo first emerged as democratically elected president in 1999.
He stated: “We were spending close to one quarter of our national budget to service debt, and there were very little resources for development, for health, for education, for roads and that’s why Nigeria under him was on the road show to campaign for debt relief, which eventually we got. Through the debt relief, we were paying some interest and they wiped off our principal.
If we had seen the problem of debt burden, and we’ve campaigned for the debt relief, why should we open our eyes again and be talking of a sustainable debt.”
Aremu warned that there is nothing like a sustainable debt.
“They should talk of sustainable development and growth. This country has abundant resources which could be annexed and one area is that we must learn to produce goods and services, that means through manufacturing, value adding activities, company can produce and then you can get taxes from them”, he said.
The Labour leader added that through the reviving of the industrial sector, more jobs would be created and government can earn more resources through personal income taxes.
He however said that there is need for tax justice, as only the poor pay taxes in the country, whereas tax justice demands that the rich should pay more taxes.
He stated further, “Today it’s only the poor that pay more taxes, because for every salary earners, their salary is deducted at source. Through value added we must also pay. But most rich people, their tax returns are not even captured.
“I think most countries set out on what would really build a nation, not the level of debt, in fact we are returning to the path of indebtedness, and we can’t stop it if we are justifying it. I’ve listened to the DMO, and if you hear them, it’s as if debt is ideal, No! As if it’s another form of evaluating development, No!”
The IndustriALL Vice President stressed that debt is a last resort and “most countries don’t go there unless they can’t help it.”
He said that planning for the fund was more important irrespective of the source. “The point is that even if we must borrow, we must ask ourselves are we using this money to finance development project or to finance importation. Fuel consumption, or bringing the goods from abroad rather than producing them locally. Largely we must spend money on developing our natural resources for us to build a virile economy”, he stressed.
A development economist, Mr. Odilim Enwegbara, believes that the country has actually under-borrowed.
He stated: “Our debt to GDP ratio is very low – the lowest among peer economies. South Africa is about 50 per cent, Brazil is about 66 per cent, so also is Mexico. So, what I am saying in essence is that US is more than 100 per cent of its GDP. UK is more than 100 per cent of its GDP.
But the problem with our borrowing, as you have just said, is that we borrow for consumption. We don’t borrow for investment. The best airport ever built in Africa is Johannesburg Airport – Oliver Thambo Airport. South Africa financed it with borrowed money, about $12 billion. South Africa makes close to $4 billion to $5 billion from that airport. So, the problem is that we don’t borrow for investments. We borrow for consumption. Nigeria is supposed to be borrowing about 50 per cent of the GDP to address infrastructural deficit. Our infrastructure deficit is about $350 billion. We cannot finance it without borrowing because our tax revenue is very low. It is about $4 billion for this fiscal year, whereas South Africa’s last fiscal year was able to raise about $76.9 billion from taxes alone. And South Africa’s budget in 2007, 2016, 2017 was $143.9 billion. Our own this year was about $23. 9 billion. So, how do we finance infrastructure? So, this is the problem. We must borrow to focus the money on infrastructure. We are supposed to fix power. The power is the lowest among the peer economies. So, we must borrow. I am one of those insisting that we must borrow. But we must do concessionary loans that have longer lifespan and you can refinance them. They give you a lot of flexibility of refinancing. We must borrow but before we borrow let the government tell Nigerians what it is borrowing for. If we say we want to generate 20,000 megawatts and as a result we want to borrow about $30 billion in the next three years or in the next five years, of course, we will understand and we will agree. When you borrow and divert; when you borrow and use it to pay salaries and meet government’s recurrent needs there won’t be any revenue or return on investment.”