OPINION: Of Debt and Nigeria’s Infrastructural Development – Professor Sheriffdeen Tella
Borrowing has become fashionable in Nigeria for states to test their viability by going to the capital market to borrow money, even for consumption purpose or just to satisfy kleptocratic urge. The Federal Government serves as the route and the surety for such loans. As of September 30, 2012, the nation’s external debt stood at $6.2bn and the government is proposing a total of $9.3bn external loan between now and 2014 to develop infrastructure. The way the government is pursuing requests and approval of loans from the National Assembly seems to indicate that the country is broke. But recent statistics from government sources do not support such situation.
There have been improvements in the external reserves and even in the excess crude oil account. The creation of the Sovereign Wealth Fund is indicative of a healthy economy such that new ratings from S&P and other international financial rating agencies have shown improvement. Although such ratings give some leverage or support to countries intending to borrow in international financial markets, it does not mean you have to borrow. The positive rating might even be the source of optimism that made the government to raise its initial request for loan from $7.9bn to $9.3bn.
If you have ever lived in Europe or United States, you would understand the banking mentality. Once the banks know you have a source of income, they pursue you with credit cards and letters that you could borrow at will and at low interest rates. Almost everyone in such economy lives on credit and gets tied to the banks and other financial agencies. It is that same way that international financial institutions lure countries to obtain credits until they get discredited. There is this high debt-GDP ratio that makes countries feel they have under-borrowed and have opportunities to borrow almost indefinitely. If a government wants to deceive its citizen in order to borrow from the markets, it will just increase the GDP and make the ratio quite small. This could also be possible in the case of Nigeria where the increasing oil output and high price give the country impressive GDP value.
There is a Yoruba proverb which says, literarily, that someone who has N200 at home and goes out to borrow N200 is merely spending the money at home. That is on the understanding that there is no interest on the borrowed money, which is not so in borrowing from commercial institutions where, no matter how low the interest charges, something has to be paid for parting with the fund. In the last 10 years, we have been doing well in terms of revenues coming in from oil as the price remained very close to $90 per barrel on the average, which is over $15 per barrel above the budgeted amount and, in the last four years the output or quantity produced per day for the same period has improved from less than 1.8 million barrels per day to average of 2.4 million barrels per day. With these figures, it is easy to calculate how many days oil sales will make up for the loans we are running after. The reports on the economy from the Central Bank of Nigeria also indicate that revenues from non-oil sources are also growing.So what is the problem?
In 2006, we exited from the claws of the international financial creditors after hard negotiation and parting away with billions of dollars that could have been used for the country’s development. Now we are going back to the same credit market, even when there is no need for it. The Co-ordinating Minister for the Economy and Finance Minister, Ngozi Okonjo-Iweala, has been showing great concern about the huge domestic debt, which the country’s managers should turn attention. But the same Minister who was involved in paying the unsubstantiated external debt in her first tenure is now championing a return to the debt trap!
In negotiating the debt relief in 2005-2006, the creditors agreed with the federal government to invest the relief proportion of the debt in areas that would make the government achieve the MDGs but today, many of the beneficiary state governments could not account for the funds allocated to them.Hence, the present precarious situation with respect to meeting the MDGs in 2015.
The focus now should be on reducing drastically, the domestic debt. When domestic creditors, who are mainly private sector business enterprises, are paid the various sums owed them, there will be injection of money in circulation with multiplier effects on productive sectors of the economy. The current borrowing from financial institutions by federal, States and local governments to meet recurrent expenditures do crowd out the private sector from getting funds to run their businesses. This, coupled with unpaid funds for services by the different levels of government, are responsible for the inability of the leading sectors of the economy,like agriculture and industry, to grow or engineer growth in other sectors.
It was one of Nigeria’s great economists, Professor OjetunjiAboyade of blessed memory, who said that that by the time a man borrows money from his spouse, it would become clear that he is actually broke. This is because men are so egoistic that borrowing from one’s wife is seen an abomination whereas it is the best way to let your wife know that you are broke. Women have this feeling that the man is always having some reserve somewhere and until that reserve is finished, spending must continue.So if you borrow money from friends to keep the home going, then she believes you are still spending part of your reserve. Our desperation to forcing the National Assembly to approve borrowing could be taken asindicative of the fact that published rosy figures from the Central Bank and Federal Bureau of Statistics are not genuine. Is the country truly broke?
One may not bother when a country is borrowing, even when there is some surplus or healthy foreign reserveand the government’s judgement for judicious use of the loan is not in doubt. In the case of Nigeria, it is not advisable to fold arms and watch the country plunge headlong into debt. One needs to ask what the over $30 billion that the country owed before was expended upon. What were the projects and what were the benefits?Were those funds not purportedly spent on infrastructure like power and roads? Also, what have been the positive outcomes of the huge oil windfall in the last ten years?
The President of the International Monetary Fund, Christine Lagade, advised that “countries that are commodity exporters have in recent years benefitted from higher prices. For them, the challenge is to use the gains from higher prices wisely – to preserve macroeconomic stability, but also to share the natural resource wealth fairly across society, and across generations.” Nigeria is one of the beneficiaries of higher prices and higher revenues but it is also one of the few naturally-endowed countries that are far from meeting the Millennium Development Goals, most of which fall due in 2015. What this implies is that the government has not been able to “share the natural resources fairly across the society”. Can we trust this government with borrowed fund?
Presently, the country has enough money from exports to invest in four major areas without putting moratorium of external reserves. These are education, power, health and transport infrastructure, which are the same sectors the government wants to borrow money to develop. About $600m of the loan is reportedly meant for providing water for one of the states. One is aware that sometime in the past, Ogun Sstate was reported to have benefitted from loan or grant from the World Bank for the same purpose, yet public water supply remains inadequate when it functions while private boreholes have become a more reliable source of water for the citizens. Instead of the periodic loose sharing of excess crude oil funds among levels of government, the money can be invested in these areas that will improve citizens welfare and equally have spill over benefits on national development.
There is hardly a day without the news of fraud in one government agency or another but hardly also do you find anybody found guilty and jailed. There has been more noise about increase in power output or repair of major highways in the country than actions. The present political circumstance or environment does not augur well for borrowing for development. The level of corruption is alarming and the fear of the loans disappearing into private pockets is real. Can the National Assembly save the future generations of agony of paying debts for which they derived no benefits?
– Sheriffdeen Tella is a Professor of Economics, Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, firstname.lastname@example.org