IN what looks like a newly-found harmonious relationship between the executive and legislative arms of government, the National Assembly last week approved the Federal Government’s request to take a $5.5bn external loan. President Muhammadu Buhari had on October 10 urged the Senate to approve the loan, stating its reasons for the quest. The Senate’s approval followed the consideration of the report of its Committee on Local and Foreign Debts, chaired by Sen. Shehu Sani (APC, Kaduna).
A breakdown of the $5.5bn loan shows that $2.5bn will be raised from multilateral donor institutions, to finance the capital component of the 2017 budget. The $3bn will, however, be sourced from the International Capital Market( ICM) through Eurobonds or Diaspora Bond issue, or a combination of both to refinance maturing domestic debts. Some of the capital projects include: construction of a second runway at the Nnamdi Azikiwe International Airport, Abuja, the Mambilla Hydro Power Project, the Second Niger Bridge, counterpart funding for rail projects, and the construction of the Bode-Bonny Road, with a bridge across the Opobo channel. Prior to the Senate approval of the loan, Minister of Finance, Mrs. Kemi Adeosun, had said that the terms and conditions of the loan would be favourable and not compromise the “integrity, independence and interest of Nigeria and its citizens.”
We want to believe, as the Finance Minister has assured, that the $3bn loan for the refinancing of domestic debts, as well as the $2.5bn to finance the capital component of the budget, will not lead to an increase in the public debt portfolio, but will reduce the cost of debt servicing. Nigerians need reassurance that the foreign loan will not increase the cost of debt servicing while creating more borrowing space in the domestic market for the private sector to benefit from.
Proper monitoring and management of loans are Nigeria’s Achilles heels. The truth is that if faithfully delivered, the projects earmarked for the loan will boost economic development and job creation. The construction of a second runway at Nnamdi Azikiwe International Airport, Abuja, will enhance the safety of air passengers, increase the use of the airport by international airlines and boost revenue. The same economic benefits can be derived if the long abandoned Mambilla hydro power project and the 2nd Niger Bridge are completed. While the 2nd Niger Bridge will boost commerce across the South-east and South-south, the completion of the hydro power project will substantially increase power supply in the country. In fact, any investment in the projects targeted by the loan will be worthwhile.
However, while we welcome the Senate’s approval of the loan, the concern in many quarters is the need for close monitoring of the loan and ensuring that Nigeria’s borrowing remains within acceptable limits. This calls for the Debt Management Office (DMO) to be diligent in its duties. Already, the latest figures from the DMO show that Nigeria’s total debt stock has hit N20trn ($15.4bn), with the external component being N4trn, or 23 percent of the total debt. Therefore, it is necessary to ensure utmost caution and prudent management of our loans, both domestic and external.
Nevertheless, it is heartening that the DMO recently set a ceiling for domestic and foreign loans that the Federal Government can take in the current fiscal year. The new debt limit is $22.08bn. The policy is part of the key policy recommendations of the Annual Debt Sustainability Analysis Report designed to promote compliance with the government’s policy of balancing domestic debts with external ones to avoid economic shocks. The DMO should keep its eyes on this objective to ensure government’s fiscal discipline.
It is necessary to recall that the Debt Management Strategy 2016-2019 provides for the rebalancing of the nation’s debt portfolio from its composition of 86:16 at the end of December 2015, to an optimal composition of 60: 40, by the end of December, 2017, for domestic and foreign debts, respectively. Such arrangement, which we agree with, supports the use of more external finance for capital projects in line with the focus of the present administration on speeding up infrastructure development by substituting the relatively expensive domestic borrowing with cheaper external financing.
It is important to emphasise that proper utilisation of all loans taken remains the key to sustainable economic recovery and growth. Now that Nigeria seems to have exited recession, every loan taken should be tied to specific projects and monitored effectively to ensure that the projects are executed.