Nigeria’s borrowing plan and matters arising

Globally, it is not only a standard, but acceptable for national and sub-national governments to borrow to meet their expenditure programmes, which are mostly developmental. Nigeria operates in the global system and is entitled to this provision. But the country seems to have a peculiar case, especially when it comes to money and public finance management.

It needs be re-emphasised that in the 2016-2018 External Borrowing Plan, President Muhammadu Buhari-led government is requesting for legislative approval for to borrow $29.960 billion.

The amount is sum of the projects and programmes put at $11.274 billion; special national infrastructure projects $10.696 billion; Eurobonds of $4.5 billion; and FGN budget support of $3.5 billion.

Except toddlers, everybody has long become suspicious of Nigerian government’s pronouncements. In fact, so many have lost confident that they are not even ready to give a thought about any proposal. This is a result of many years of deceitful statements.

The proposal is huge, but it is not the problem, after all, any rational being would desire big projects for the country given the level of infrastructure gap in the country.

What is the meaning and content of “projects and programmes” that were allotted $11.274 billion? What is “special national infrastructure projects” that had $10.696 billion? Indeed, the proposal with such ambiguous sub-heads will immediately send a signal that the plan is to put the country into more debt, but enrich the few. Similar things can be seen in the budget document?

The presidential request was not accompanied by detailed information explaining. This has given rise to suspicions of lack of knowledge, negligence and sheer ill-will on the part of the economic team. And in unwitting confirmation to the public suspicion, the National Assembly rejected it immediately, asking for details.An economist and fiscal governance campaigner, Dr. Uzochukwu Anakom, noted that this request is coming at a time the economy is deep into recession.

But for a knowledge and fiscal governance institution- Centre for Social Justice, in a report made available to The Guardian, pointed out that there is need to discuss the trend of growth of public sector debts in Nigeria since the 2010 fiscal year; the borrowing plan in line with the 2016 Debt Sustainability Analysis, as prepared by the Debt Management Office; and the implication of the borrowing plan in the light of declining oil revenue and economic growth in Nigeria.

Also, Dr. Onyinyechi Agu, observed that public sector debts (domestic and external) have tremendously increased since 2010, with corresponding increase in the provision for debt service.The domestic debt stock increased from N4.552 trillion in 2010 to the end of June 2016 figure of N10.66 trillion. This is a 133 per cent increase over the value of debt stock as at 2010.

External debt stock increased from $4.532 billion in 2010 to the end of June 2016 figure of $11.262 billion representing 148 per cent increase from the 2010 value of the debt stock.

The Lead Director of CSJ, Eze Onyekpere, said: “Fiscal Responsibility Act (FRA) made clear provisions for debts, debt management and borrowing, stipulating that borrowing shall be for only capital projects and human development, concessional in nature, subject to legislative approval and a long period of amortization and in overall, the national debts should be sustainable.

“The FRA also provides for debt limitation. The debt to GDP ratio is mostly utilised as a good measure of debt sustainability in countries where taxation is a major source of revenue for the government. “In such a case, the ability of the government to pay up its debts depends largely on the incomes of the citizens and corporate organisations, that in turn pay taxes to the government.

“In the case of Nigeria, the tax to GDP ratio is very low- less than 10 percent. Oil accounts for less than 10 per cent of GDP, but contributes over 90 percent of foreign currency receipts. But now the oil economy has been in deep crisis,” he said.

According to the draft Medium Term Expenditure Framework (MTEF) 2017-2019, for the first half of 2016, the country has spent N2.4 trillion and has incurred a debt/deficit of N1.46 trillion, as retained revenue was about N951 billion. Thus, the retained revenue constitutes only 39.33 per cent of total expenditure in the first half of the year, while borrowing funded the remaining 61 per cent expenditure.

With total capital expenditure in the half year amounting to N159.1, the implication of the foregoing is that out of the N1.46 trillion billion borrowed, N1.31 trillion was spent on recurrent expenditure.

Fidelis Onyejegu of Good Governance Office, at CSJ, while responding to the development, said that the 2016 Debt Sustainability Analysis made most of its recommendations based on the optimistic scenario, which evidently cannot hold in the face of extant macroeconomic realities. This has implications on the planned borrowing too.

“Projected external debt service and oil revenues do not converge in a sustainable manner whilst the proposed figures to be borrowed are far in excess of capital requirements in the MTEF 2017- 2019.

“The Eurobond component of the request heightens the challenge of sustainability. Extant Nigerian Eurobonds constitute 13.32 of the external debt stock, but gulped 38.8 per cent of debt repayment in the first quarter of 2016.

“This clearly shows that the interest rate and charges attached to the Eurobond are very high and beyond the contemplation of the FRA. Going for the Eurobonds at a time of declined commodity prices, depleted foreign reserves and waning investor confidence will ensure that the rates of interest may not be less than 10 per cent.

Therefore, the experts were unanimous in calling on the Debt Management Office to proffer policy recommendations on the basis of the baseline scenarios observed in the findings of its debt management technical team.

There is also a call on the President to follow the stipulations of the FRA to wait for the full approval of the submitted Medium Term Expenditures Framework (2017–2019), which should serve as the basis for any proposal to borrow.

“As an alternative, the President should withdraw both the proposed MTEF (2017–2019) and the proposed Medium Term Borrowing Plan (2016 – 2018), revise both documents to agree on the capital projects that should demand such a huge loan.

“These projects should be identifiable and communicated clearly to provide justification for the inclusion of any project as a capital project that should be financed with the proposed loan.

“The plan should provide detailed borrowing plan that shows at what point in the three-year period a particular amount will be borrowed and from what sources. This will help to show if this request for the approval of medium term borrowing plan is a critically thought out plan,” Onyekpere said.

Of critical consideration too, is a detailed repayment plan in accordance with the stipulations of FRA, as opposed to the usual pile up of debts for generations to come. The repayment feasibility plan will be a proof that the debt plan is thought-out. It can then win public support naturally.