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Emphatic no to another jumbo loan!


Dollar. PHOTO: AFP

The statistics tell it all. The government is in dire financial straits. This year’s budget deficit is put at $6.03 billion and will be financed by both domestic and external loans. The government has in the last few years committed about 20 per cent of the annual budget to debt servicing.  About N2.5 trillion will go into meeting debt obligation this year.

Above all, it is burdened by a huge infrastructural deficit spanning road and the energy sector. On the corruption perception index, its image has continued to plummet. And amidst dwindling revenue from its main export, crude oil, the fiscal horizon is bleak. Therefore, to survive its fiscal shortcomings, it has continued to implement International Financial Institution’s mediated fiscal policies ranging from increment in Value-Added Tax and increased bank charges. For a profligate national bureaucracy, this overt and covert fleecing of the citizens through varied financial extortions would not be enough to bail out the government out of its financial mess. Thus, it requires to borrow, in one fell swoop or stagial, the sum of $29.96 billion to implement its programme.  While we shudder over this quest by government that has not demonstrated any fiscal responsibility, we first begin our objection to this life-and-death matter with a question: why do nations borrow?

The scholarly answers, commonsensical in nature, are: One, lending and borrowing is a sociological fact of human civilisation. The act of lending and borrowing will endure. Two, nations are not equally endowed in natural and human resources. Three, nations are cajoled into borrowing even when it is not necessary because financial penetration is one of the best ways of expansion of imperialism into countries to subject them to subservient positions. These realities are aggravated by the cyclical crisis of the global capitalist economy, and nations struggle with them.

One sure way to deal with the issue of resource shortcoming is to borrow. But others have creatively hewed water out of stone by shunning indebtedness and looking inward.  This is the story of two Koreas: North implemented Juche, a self-reliance economic principle and the South invested in human resources yielding human capital with power for innovation, which put that country on industrial path. Nigeria cannot be said to be deficient of these factors. We are endowed with abundant natural resources and a huge population that by some estimate will push the country into the second most populous country in the world in the not-distant-future. But the country has not been lucky with political elite capable of harnessing its resources. The country is richly endowed with short-sighted rulers who have treated the commonwealth as a private enterprise and have therefore continued to squander the wealth of the country.

There is a flipside to borrowing, no matter how justifiable and it is as Benjamin Franklin puts it: he that goes a borrowing goes a sorrowing. This is very true of most African countries many of which are currently looped in the race for bonds. For example, at independence, Nigeria relied on external loans for meeting its budget deficit. They came from multilateral organisations like the World Bank and International Monetary Fund (IMF) as well as trading partners like Britain, USA and Germany. At independence, the country’s debt stood at N82.4 million and by 1965, went up to N489 million in 1970. By 1975, the country took its first jumbo loan of $1.4 billion at a time its earnings from crude oil was looking good and needed more of investment for the rainy day. It is to be noted that the notorious ‘‘cement armada’’ underlined the profligacy of the period. The country’s indebtedness was compounded by the civilian government of 1979-1983. The civilian political elite embarked on capital projects, many of them white elephant, with external funding that plunged the country into debt peonage. According to a scholarly analysis, “over 40 per cent of the projects for which external loans were contracted and fully drawn in the 1980s and 1990s were never started while many of them were economically unviable.” The consequence was that the country slipped into debt trap.

Nations in debt peonage do contend with debilitating interest rate whether the loans are concessionary or otherwise. And donors do seek their pound of flesh through conditionalities. As is well known in financial circles, past African debt crises involved restructuring with creditors under conditionalities that were adversarial to economic development. In practice, default could involve forfeiture of assets domestic or foreign to the lenders. Even in the context of the dynamics of debt management, Nigeria does not have the capacity to cope with the discipline of private markets and the international financial institutions where the credit being sought may come from. Even where sovereign bonds are issued, the country cannot cope with the interest rates charged by investors. At the moment, debt-serving obligation is already taking a huge toll on the national income. The trouble has been that we hardly follow our money trails.

It is however curious that the debt reprieve of 2005 has now turned to bondage in 2020. In 2005, before exit from indebtedness, Nigeria’s external debt stood at about $32 billion. Strangely, the country has quickly slipped back to indebtedness under the current administration rising to about $27.1 billion as at June 30 last year. This new accumulation of debt has no grounding in economic management and financial engineering. The country is blessed with oil and yet the country cannot refine and has wasted billions of naira importing refined petroleum product into the country. Besides, the operation of the Nigerian National Petroleum Company (NNPC) is opaque.  A recent holistic analysis of our total national indebtedness including domestic ones by scholars has revealed that by today’s statistics of N25 trillion, the country has borrowed in three years more than it ever did in 30 years previously.

The trite economic argument of corruptible elite is that the debt-GDP ratio of 30 per cent threshold is yet to be exceeded and also that governments must borrow to fund policies and infrastructure in ways that can address growth and development. Doubtless, borrowing is a healthy option as long as the government is disciplined enough to repay. But we note that borrowing comes with the risk of crises. This is more so for a profligate political class. There is nothing in our history that shows that we are prudent and honest in the management of resources whether national wealth or credit facilities.  And so this newspaper is persuaded that if care is not taken, the country’s case will turn to be the case of “short-sighted financial markets, working with short-sighted governments, laying the groundwork for the world’s next debt crisis.” In the present financial crunch, self-inflicted anyway, there are alternatives to borrowing.

Hold your breath, follow us this week on the alternatives and much more on why the authorities in Abuja should not be allowed to go on borrowing again.

In this article:
Benjamin FranklinIMFNNPC
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