More loans

IF the nation hitherto harboured doubts about the Jonathan administration’s appetite for debts, the $1 billion Eurobond offer (which Minister of Finance Ngozi Okonjo-Iweala earlier in the month gleefully announced its over-subscription by 400 percent), and the $1.1 billion loan deal with the Chinese government said to have been finalised during President Goodluck Jonathan’s recent visit to the country ought to have settled all pretensions. The $.1billion loan is part of the $3 billion loan package being considered for Nigeria by the Chinese government.

Today, only the administration pretends that the trajectory of the debt is anything but worrisome. From the rather modest level of $3.5 billion post-exit of the London and Paris Clubs debts, the foreign debt stock has since ballooned to $6.9 billion as at June 30 – a figure that excludes the Eurobond and the latest loan from the Chinese government.

What comes as even more frightening is the prognosis. Under the Medium Term Rolling Plan of the Debt Management Office (DMO) for instance, the debt for 2013 is projected at $12.165 billion; this figure is expected to rise to $14.585 billion in 2014 and $16.765 billion in 2015. No less scary is the domestic debt situation with its projection of $7.125 billion for 2013, $7.92 billion for 2014 and $8.44 billion in 2015.

Now, the government’s argument is familiar: the current debt stock is sustainable as the nation is said to be under-borrowed. The extension of the argument is the nebulous rationalisation that the Debt –to- GDP ratio now at 21.50 percent still falls within acceptable limits. In this, the government has been quick to cite the corresponding figures for ‘similar’ emerging economies of Brazil and South Africa of 68.47 percent and 42.30 percent, respectively.

We think that the government missed the argument. In the first place, the nation did not have to exit from the debtor cartel only to relapse into the bad habit of stacking up dubious loans for future generations. This is not only unacceptable, but immoral. Secondly, whereas the rate of debt accumulation has grown somewhat exponentially under the Jonathan administration; the obverse side is that citizens have had great troubles appreciating where the huge monies went. In other words, they see very little activities going on that could remotely match the scale of the debts known to have been contracted.

As for the government’s rationale that some of the domestic debts were inevitable to the cause of deepening the domestic bond market, the position falls flat if only for the fact that the government has been known to use some of the proceeds for recurrent expenditures such as wage increases in the public sector.

These, however are not the only grounds on which citizens continue to voice anxiety. Some of the loans are not known to be tied to specific projects, hence prone to misuse. The $1 billion Eurobond issue falls into this category. Even where, as in the case of the Chinese loan which is said to be tied to specific infrastructure projects, the choice of the projects has tended to come across as questionable.

For instance, what makes the four airport projects “priority” at this time? Couldn’t the government have looked for alternative but less burdensome funding arrangements for the airport projects, more so as the infrastructure concessioning framework is not only in place but already has the backing of law? And just in the event that the government considers loans as inevitable, couldn’t these have been restricted to projects with high social and economic impact?

The bottom-line is this: the Federal Government has not been entirely convincing on the rationale of taking more loans at a time when oil prices continue to surpass projections. And, has been said, it does not make any rational sense to stash our reserves abroad at nominal interest of barely one percent while shopping for foreign credit which attracts interest of six percent. Not only is it bad mathematics; it is also bad economics.

Source: The Nation

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