Obasanjo’s fears of mounting jumbo debts and repayment agonies
Organizers of the ‘Why I am Alive’ campaign celebration could have expected interesting twists when they invited former President, Olusegun Aremu Obasanjo to tell ‘the Nigerian story’ in Lagos at the weekend. Board member of the group, Pastor Ituah Ighodalo, had given a hint of what was to come when he asked his audience to ‘ have a lot of fun and enjoyment with Baba’, who he described as ‘a man with a passion for Nigeria.’
Ighodalo was hardly done with his introductions when the former president took the stage and announced that, although he had agreed with the initial topic, he had had to tweak the discourse to focus more on “Nigeria’s present and future”. He would then speak on “Challenges of Debt and Sustenance of Democracy,” just as he acknowledged the “Nigerian story” of the day that celebrated the career success of US-based Nigerian and world’s first heart and kidney specialist, Dr. Olurotimi Badero.
“Our political leaders have suddenly developed not just a taste for, but a voracious appetite for debt,” Obasanjo began. “As usual, most of such debts that are procured are hardly thought through. Predictably, the ability to repay such debts is lacking,” he told his audience, stressing that the new creditors were less tolerant of the country’s limitations and inadequacies and demanding to manage institutions and agencies to recoup their loans.
“We can extrapolate from this to decide the future impact on our already compromised sovereign existence. Current prognosis suggests that things might get worse.”
Of particular concern to Obasanjo is what he described as governments’ “notorious deficiency in serious and adequate discipline” as well as “lack of competence and consistency. We borrowed to build a light rail in Lagos, embarked on the project and a succeeding governor abandoned the project for his full term of four years at 65 percent completion when he should have started paying down on the loan. This light rail is important for the whole of Nigeria not only with respect for man hours of Gross Domestic Product (GDP) that would have continued to be saved but because such loans are federally guaranteed. At the same time, there are bus terminals that were presidentially declared open but not used. This type of situation was not in Lagos alone but variously in other states like Rivers and Cross River. And the problem is not limited to states.”
Obasanjo kicked against alleged plans to demolish the Murtala Muhammed International Airport and rebuild from the scratch. He noted that procuring debt required clarity of purpose which must be linked with the ability to repay principal and interest as and when due.
His noted creditor’s special delight in debtors’ inability to service debts as they seek to impose stipulated sanctions and later appear friendly by offering to restructure the loans.
“So, overnight, a debt of $1million will become $5million in spite of the fact that over time you had repaid $1.2 million. I say this without fear of contradiction. I have borrowed from banks as a private sector operator and I have borrowed from multilateral institutions as a political leader. So, I believe, you would understand my fears and experience about jumbo loans and my agony in getting rid of our external debts and developing a sustainable approach to address (ing) our domestic debts.”
After handing over to a civilian regime as military Head of State in 1979, Obasanjo had come back as a civilian president in 1999 until 2007. He, as president, spearheaded the journey to debt relief in the early 2000s, the reason he shivers at the country’s seeming relapse into a debt burden. He describes his warning alarm as “very important” in the light of Nigeria’s pivotal position in Africa, as any headwind would have a great impact on the entire continent. Nigeria accounts for about 20 percent of Africa’s GDP and almost 75 percent of the West African economy. Debt in Africa since 2013, according to analysts, has risen rapidly with the median debt-to-GDP ratio increasing to 53 percent in 2017. This means that West African economies, of which Nigeria’s constitutes about 75 percent, borrow more than half of what they produce nationally every year.
Obasanjo alluded to this when he submitted that: “Our relapse into debt will be wrong signalling to the rest of the continent and could be tantamount to backing the entire continent into another era of Highly Indebted Poor Countries.”
As military Head of State in the 1970s during the era of excess funds in banks and credit institutions due to oil price hikes, Obasanjo superintended an upsurge in liquidity.
“We were begged to borrow using the same argument, as we have today, that we were under-borrowed. This led to the first ‘jumbo loan’, as it was called then, of $1 billion,” he said. “By the time I came back as democratically-elected President, a little over 20 years later, we had two problems of debt: London Club which constitutes private creditors that have formed a cartel of creditors ganging up against us and making economic life difficult for us as a nation; and Paris Club which was the Western government creditors taking up what we borrowed in cash and kind from them and buying some debts of their private sector organisations.”
By the beginning of the 21st century, according to ex-President Obasanjo, Nigeria had had a debt burden of almost $36 billion (with about $31 billion owed to Paris Club and about $5 billion owed to London Club). It meant Nigeria was spending about $3billion yearly to service the loans with hard penalty accumulated and added to the quantum of the debt when the country defaulted. “The situation, we found ourselves in 1999/2000 was a suffocating debt burden,” Obasanjo lamented. “Those preaching to us that we were under-borrowed had collected their commission and gone, our own political leaders and civil servants who unfortunately got convinced to lead us into the debt trap were sitting pretty in their homes and some sleeping pretty in their graves.”
Obasanjo said he inherited a meagre $3.7 billion economy in foreign reserves, less than enough to finance or meet Nigeria’s import obligations for two months at a time crude oil was trading for about $9 per barrel in 1999. “Our foreign creditors were barging down our doors demanding payment; at this time, we were committed to servicing our debt with about $3 billion every year,” he explained.
Worse still, Obasanjo claimed there was no consolidated or accurate record of Nigeria’s debts, forcing the central government, as sovereign authority, to accept responsibility for all foreign debts allegedly owed by Nigerian companies, state and federal level authorities.
“We cleaned up by establishing a central debt management office while embarking on seeking debt relief. Because we demonstrated leadership and commitment through self-imposed reforms, we were able to secure debt relief from the Paris Club. By 2006, our quantum of debt had come down to about $3.6 billion from almost $36 billion, only about 10 percent of what it was before we got $20 billion relief and we paid a little over $12 billion to the Paris Club (with a little out of it to the London Club to adjust our debt).”
However, Obasanjo expressed deep concern that the past efforts at getting Nigeria out of debt trap could have gone to waste in the light of the increasing debt profile. Warning against “impending bankruptcy,” the former president said the country’s total external debt was about $10.32 billion in 2015. “In four short years by March 2019, our external debt grew to N24.947 trillion or $81.274 billion. To service this current level of indebtedness we must commit at least 50 percent of our foreign earnings. Such a situation talks about an impending bankruptcy.”
Nothing short of a national dialogue or debate on Nigeria’s short, medium and long-term plans could solve the problem, he said.
The former president considers this dialogue very urgent in view of the already glaring fiscal challenges in meeting national obligations, the ramped-up efforts at tax collection notwithstanding.